Sources of finance

Question 1

Crowd funding

Answer 1

Contributions done by a large number of oeople
- done via the internet such as Gofundme
- can donate, loan or buy shares

Funders are rewarded with early access or discounted price

Builds publicity
- good for new products
- helps to establish their place in the market

Builds customer advocates
- funders promote their ownership and product online, likely to trust recommendation
- saves marketing costs during introduction

Business
- Brewdogs

Question 2

Venture capital

Answer 2

Shares/ loans invested into a high risk business

Professional investors

Provide advice

Good for new innovative businesses lacking experience

Question 3

Retained profit

Answer 3

Built up over the years for later investment

Dont have to pay interest
No loss of control

Businesses may not make enough profit
Shareholders may object as they want dividends
May miss out on investment opportunities

Question 4

Overdrafts

Answer 4

The bank lets the business have negative amount in account

Flexible and only needs to pay back what it’s used
May be needed for a short term issue that they dont currently have the capital to solve

Charge high interest rates
Not suitable in the long term

Question 5

Choosing a source

Answer 5

Legal structure of a business
- Private limited companies want control
- Sole traders can’t sell shares

Amount of money needed
- the larger, the less likely to use internal

Level of risk
- a high risk business is unlikely to get a bank loan
- may need to look at venture capital

Short term or long term need