Theme 2.1 Raising Finance Flashcards
(17 cards)
Sources of internal finance
- owners capital -> personal savings
- retained profit -> profit generated is reinvested -> opportunity cost = shareholders do not get extra profit
- sales of assets -> sale & leaseback arrangement
Advantages and disadvantages of internal finance
+ often free and doesn’t involve interest
+ doesn’t involve 3rd party -> influence decision making
- opportunity cost -> once used not available for other purposes
- may not be sufficient
Source of external finance -> crowdfunding
+ form of free marketing
+ fast method
- public request risk being copied by competitors
- of target isn’t reached money is returned to investors
Business Angels
+ offer specialist advice and guidance
+ willing to take the risk
- own a stake of business
- finding ‘right’ angel can be challenging
Banks
+ offers short term (overdrafts) and long term (mortgages) finance
+ banks offer advice to those who use services
- collect interest
- a business plan required to access bank finance
Family and Friends
+ cheap no interest
+ flexible terms - no strings attached
- may damage relationships
Method -> loans
+ interest rates
+ repayments made equal instalments -> help budgeting
- fail to repay, may deter investors in the future
Overdrafts
Spend more money than you have in an account
+ short term
+ offers flexibility
- may be with drawn of bank is concerned business ability to repay
Share capital
Capital raised from the sale of shares
+ large amount of capital raised
+ no interest
- loss of control
Venture capital
Funds provided by specialist investors
+ valuable source of guidence
- loss of cotrol
Leasing
Regular payments
+ does not own asset = not responsible
- more expensive in the long run
Trade credit
Pay suppliers at a later date
+ no interest
- potential harm to supplier relationships
Grant
If a business meets a specific criteria
+ don’t need to repay
- needs to be used for intended purpose
Partner ship
unlimited liability
20 people max
Sole trader
unlimited liability
one person
PLC
Public limited company -> shares open to the public
- limited liability
LTD
Private limited company
shares not open to public
- limited liability
