external finance

bank loan

external method of finance borrowed from the bank, paid back with interest over a period of time

business angels

individuals who invest in a business in exchange for stake in the business

crowd funding

an external source of finance where a large number of individuals provide funding for a business or project in return for shares/free products/discounts

external finance

money raised from outside the business

grant

a sum of money given by a government or other organisation. it does not need to be repaid and no interest is charged

leasing

a contract to acquire the use of resources such as property or equipment

loan

an external source, amount of money borrowed usually repayable after a fixed term of more then 12 months

overdraft

when a business has a negative balance in their bank account because the amount withdrawn is greater then current balance

peer to peer funding

when a person lends money to other individuals or businesses via online transactions

share capital

the finance raised by a business by issuing/selling of new shares

trade credit

where a firm receives stock inventory and raw materials from a supplier which it does not have to pay for until later

venture capital

external source of finance when the business issues shares to a small number of investors in return for capital injection into the company

benefits of peer 2 peer funding

more flexible

lower interest rates

easy access to credit as may have a bad credit score

faster process as the application tents to be a lot less paperwork

limitations of peer 2 peer funding

personal assets may be at risk is cant pay back

may not meet guidelines

may have strict operating history

benefits of business angels

no debt repayments required

mentorship and expertise

fast and flexible funding

limitations of business angels

high performance expectations

loss of equity

hard to find the right fit

risk of conflicts

benefits of crowd funding

can use a large number of individuals so investor can invest as little or as much as they want

easy/quick access for start up companies

build a community of early supporters

limitations of crowd funding

not guaranteed to have success

time consuming process

fees involved with applications to websites

high expectations from those investors

benefits of bank loans

greater certainty of funding

lower interest rates then a bank overdraft

can plan ahead as know when repayments due

banks are reliable

limitations of bank loans

requires security (collateral)

need a good business plan

no flexibility

expensive especially if high risk

have to repay on time

benefits of share capital

they raise finance without the need to repay

flexible

dividends can be cut if the business is not performing well

shareholders can provide knowledge and experience

limitations of share capital

loss of ownership and control

pressure from share holds to perform

potential for conflicts

benefits of venture capital

expertise and mentorship

no repayment obligation

large amounts of capital gained at once

limitations of venture capital

to compensate for the risks venture capitalists usually require a substantial part of ownership of the company

may loose control as they want to contribute to running

high expectations

benefits of overdraft

relatively easy to arrange

flexible-use as cash flow requires

interest only paid on the amount borrowed

doesnt require collateral

limitations of overdraft

interest charge caries

very high interest rate

can be a result of poor financial planning

benefits of leasing

there is no capital outlay so it can be a big help to cash flow

can upgrade often

limitations of leasing

monthly leasing fee and may end up paying more in long run

need to provide deposit and prove steady income

dont own the asset so you are not able to modify it

benefits of trade credit

typically interest free

no collateral required

easy to access w good credit history

improves cash flow as able to sell goods b4 paying supplier

limitations of trade credit

short payment terms

late payment penalties

limited availability to start up business

benefits of grants

as long as you stick to conditons of agreement you wont need to repay the amount provided

no equity loss

you have control over where money is spent

limitations of grants

hard to obtain and have to prove idea is worthwhile

time consuming applications

usage restrictions