sources of finance Flashcards
(15 cards)
internal sources of finance
- retained profits
- family and friends
external sources off finance
- bank loan
bank over draft
loans and grants
why are personal sources important to a start up
- the more a founder puts in , the more others will invest ( added confidence)
- cheap compared to bank loan
internal and external sources of finance for ESTABLISHED business
- retained profits
assets disposals - spare land/ surplus equipment
external
-bank loan
suppliers
retained profits pos and neg
- cheap
very flexible
shareholders may want dividend if business isn’t achieving high returns on investment
shares
- company issues new shares
shareholders buy shares - conmpay has more cash and more shareholders
share issues pos and neg
pos -
funds
neg-
costly and time consuming
existing shareholders may be diluted
raising loan capital
bank overdraft
bank loan
debentures
bank loans
- long term finance
- lower rate of interest that an overdraft would be
bank overdraft
- short term finance
-flexible source of finance eg only used when needed
adv and disadv of bank loan
- lower interest rates
- good meth of financing fixed assets
dis-
needs security
harder to arrange
adv and disadv of bank overdraft
adv-
easy to arrange
flexible
interest only paid on amount borrowed
dis-
can be withdrawn at short notice
-higher interest rates than bank loan
debentures
- long term loan
- fixed interest rate
venture capital
investors in private companies
-manage investment funds = high rates of return
pos-
substantial amount can b raised
better discipline to business management and strategy
cons - high rate of return NEEDED
- loss of control - venture capitalist =take majority of share in company
