Studied by 0 people
how can banks be external finance?
banks may lend a loan to a business to start-up or growth
banks may also provide a business with an overdraft to help when they have cash flow problems
what is peer to peer funding?
p2pl
these are unsecured loans without going through a bank
e.g. student loans, payday loans, debt factoring, lease agreements
what are business angels?
angel investing is equity finance
makes use of their personal disposable finance and makes their own decision about making the investment
usually take shares in the business in return for providing equity finance
seek to have a return on their investment over a period of 3-8years
angels can invest on their own or with a group of people
what is crowd funding?
a large number of people fund a project over the internet making small investments each
3 ways to fund; donate, lend, invest
donate - no money back, but rewards like tickets or a newsletter
lend - get money back with interest and satisfaction of contributing to success of a small business
invest - invest in a business in exchange for equity or shares which may increase in value
what is a bank loan?
loaning money from a bank is like renting the money
banks will lend to small businesses but may not lend when they first start-up as there is no track record or history of them making money
quick to set up
loans are affected by interest rates
what is overdraft?
some months a business may need extra cash to tide it over until a better month
an overdraft may be organised by the bank which is short term lending of smaller amounts of money
once its arranged on an account a business can dip into it or pay it back as they see fit
what is ordinary share capital?
in a public limited company they can raise more finance to expand by having an ordinary share issue
this is an external and long term method of finance but would only apply to a large business with a plc after its name
what is venture capital?
also known as private equity finance
invest large sums of money in a business in return for shares in the company
will typically invest at least £50,000 in a small region business although this can rise into millions of pounds
what is a lease?
as a business grows it may decide that it needs some more vehicles or equipment
they may decide to lease so that the equipment can be updated regularly
they will never own the equipment but will get the option to change it when it wears out
what is trade credit?
when one business trades with another they will sometimes need to buy goods with trade credit
the seller gives the buyer 30, 60, 90 days to pay
the buyer then has time to sell the goods in their own shop before they have to pay for them
the wholesaler may give the buyer a discount when they use cash instead
what are government grants?
the government or the European Union provides financial help to businesses in some areas of the country, in an effort to overcome problems of unemployment
government grants do not normally have to be repaid and owners keep full control of their business
what are the advantages of government grants?
don’t have to pay it back
don’t have to pay interest on it like a loan
won’t lose control of your business
what are the disadvantages of a government grant?
have to find a grant that suits your specific project, which can be difficult
there’s a lot of competition for grants
usually be expected to match the funds you’re awarded
grants are usually awarded for proposed projects, not ones that have already started
application process can be time-consuming
