External Sources of Finance

Bank loans

money borrowed from the bank

Advantages of bank loans

fixed repayments and no ownership loss

Disadvantages of Bank loans

interest and no flexibility in repayments

Bank overdraft

when the bank allows you to go into a negative balance

Advantages of bank overdrafts

flexible borrowing and quick access to funds

Disadvantages of bank overdrafts

High interest rates and repayable on demand

Credit cards

card that allows you to borrow money to buy things and pay later

Advantages of credit cards

quick access to funds and helps manage cash flow

Disadvantages of credit cards

High interest rates and spending limits

Suppliers/ trade credit

when a supplier extends a line of credit to business customers buying its goods and services

Advantages of using suppliers/trade credit

improves cash flow and no interest if paid on time

Disadvantages of suppliers/trade credit

late payments can hurt relationships

Hire purchase

allows a business to buy assets without taking out large amounts of cash

Advantages of hire purchasing

immediate use of assets while spreading costs over a period of time

Disadvantage of hire purchasing

total costs higher due to interest rates

Leasing

renting a business asset over a period of time for regular rental payments

Advantages of leasing

flexibility and no large upfront costs

Disadvantages of leasing

no ownership over asset and total cost can be higher

Government grant

money given by the government to support a business or project for specific purposes,

Advantages of government grants

no repayment required and helps with specific projects

Disadvantages of government grants

Eligibility criteria

Venture Capital

private finance offered by investors to start up businesses that show potential for high growth

Advantages of venture capitalist

access to significant funding and extra expertise and support

Disadvantages of venture capitalist

Loss or control and high expectations

Angel investors

provides capital fro starts ups venture capitalists consider growth to be too slow but still has long term potential

Advantages of angel investors

access to early age funding and mentorship

Disadvantages of angel investors

loss of equity and potential for influence

Crowdfunding

large amounts of people make small investments to raise money

Advantages of crowdfunding

access to large pool of potential investors and market validation

Disadvantages of crowdfunding

time consuming and uncertain outcome

Invoice factoring

hen a business sells its outstanding invoices to a third party at a discount in exchange for immediate cash.

Advantages of Invoice factoring

quick access to cash and no debts

Disadvantages of invoice factoring

costly fees and potential impact on customer relationships

Selling shares

when a business offers ownership stakes in the company to investors in exchange for capital

Advantages of selling shares

raises significant capital and no repayment is required

Disadvantages of selling shares

loss of control and profit sharing