Flashcards in sources of finance Deck (16):
what are external sources of finance?
these are ways of raising finance from outside the business such as loans, overdrafts and share capital
define debt factoring
a firm sells the right to collect the money it is owed to a factoring company in return for a payment about 75% of the value of the debt
what's an overdraft?
an agreement with the bank which allows a business to spend more than it has in its bank account
what is retained profit?
the part of a firms profit that is reinvested in the business
what is share capital?
money raised by issuing shares
what are bank loans?
an amount which is borrowed for a certain period of time
what is venture capital?
specialist firms that provide finance for businesses that may be too risky for other investors who want a share of the ownership of the company
would a bank loan be internal/external and short/long term and why?
large amounts being borrowed over a long time
would an overdraft be internal/external and short/long term and why?
not much overdraft offered and interest may be implemented, temporary borrowing
would a sales of assets be internal/external and short/long term and why?
6 factors which may influence decisions on sources of finance
- the reason the finance is needed
- how well established the business is
- the legal structure of a business
- the cost of finance
why may a new business find it difficult to get external funding?
new start up businesses have no initial sources of finance or have limited sources which is a big risk to potential investors
explain and advantage to a plc of using loan finance rather than issuing more share capital to fund expansion
loans can be negotiated to meet a business's specific requirements, and managers can plan for repayments within budgets. share capital also reduces control
2 advantages of using crowd funding to start a new business
- cheap source of finance
- increasingly relevant as UK banks reduce short term loaning
2 disadvantages of using crowd funding to start a new business
- unfamiliar source of finance
- may not be suitable to raise large amounts of capital