External Finance Flashcards

Flashcards for review of external finance sources and methods.

Family & Friends (External source of finance)

When an entrepreneur is given or loaned money by family or friends.

Family & Friends - Advantages

Flexible terms, lower interest rates, strong personal support.

Family & Friends - Disadvantages

Potential strain on relationships due to informal terms, may lack business expertise.

Banks (External source of finance)

Commercial institutions that provide a range of external finance for businesses, including loans, overdrafts, and mortgages, and offer advice and support.

Banks - Advantages

Large amounts of capital, structured repayment plans, professional advice.

Banks - Disadvantages

Strict eligibility criteria, interest rates, collateral required.

Peer-to-Peer lending (External source of finance)

When large groups of people provide small investments to the platform then used as loan finance for businesses, arranged through p2p websites (may take a small fee)

Peer-to-Peer lending - Advantages

Can quickly provide loans, often lower interest rates than banks, investor often gets higher savings rate of interest

Peer-to-Peer lending - Disadvantages

High risk for lender due to lack of regulations like banks, no returns guarenteed

Business Angels (External source of finance)

Individuals who invest between £10,000 and £100,000 in exchange for a share of a business, often offering advice and support.

Business Angels - Advantages

Expertise and mentoring, willingness to take risks, networking opportunities, tend to invest long term

Business Angels - Disadvantages

Have to share profits with angel, potential for interference (hard to find an angel with a common vision), high expectations

Crowdfunding

Large groups of people make small individual investments to provide finance, arranged through crowdfunding websites, investors usually offered a perk/share

Crowdfunding - Advantages

Quickly raise large sums, extra marketing & exposure = improved social engagement

Crowdfunding - Disadvantages

May be unsuccessful, usually need to offer shares of business