Sources of finance Flashcards
Savings
Long term
Cons
personal loss is larger risk of loss-> Restricted ~way one time thing
can cause fallouts
Not repaid
Pros
Cheap readily available
strong signal of commitment
no cost.
Full control.
Friends and family
Long term+ short term
Pros
Supportive
- quick + cheaper to arrange
- more flexible repayment terms
- no fees.
Cons
Adds stres to entrepreneur.
might get less money than with a loan.
Personal loss in the family.
Loans
Long term
Cons: fixed time period
Interest more than borrowed
Pay start up for security
Failure to pay loan for an item means you could lose that item
Pros: long term , spread payments
Share capital
Long term
Pros: large amounts don’t need to be shared
Don’t need to be paid back
Limited liability
Cons: partially ownership, profit shared, diluted control, vulnerable to takeover, permanent
Venture capital
Long term
Pros: not owners money
Venture capitalists experience
Can invest large sums of money
Cons: investor will expect return
Investor will want a say in decision making
Investor will lose money/risky
Crowd funding
Long term
Pros: many investors
Less risk of loss
Cons: may not get paid back
If goal is not reached investors get money back (all or nothing )
Small business grants
Long term
Pro : doesn’t have to be repaid
Cons: difficult to obtain, may have to show a business plan
Retained profit
Long term
Pros: cheap, doesn’t have to ask for investors
Cons:hoard cash without investing
May be unreliable, conflict with share holders
Trade credit
Short term , buy now pay later
Pros: delayed payment
Flexible, improved cash flow
Sell product before you pay back
Cons : takes longer to settle bills, holds onto cash longer
If not paid back on time they can go into debt
Overdraft
Short term
Pros:
Only pays interest when overdue
Flexible
Helps with cashflow
Cons:
Pay interest if not paid on time
