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Debt Finance
Involves borrowing money that must be paid back over time, usually with interest.
Bank Loans
A fixed sum of money borrowed from a bank, to be paid back in installments over an agreed period with interest.
Advantages of Bank Loans
Large sums can be borrowed; repayments are predictable.
Disadvantages of Bank Loans
Interest payments add to the cost; risk of default exists.
Overdrafts
A short-term borrowing facility allowing a business to withdraw more money than it has in its account.
Advantages of Overdrafts
Flexible for managing short-term cash flow issues; can be accessed quickly.
Disadvantages of Overdrafts
High-interest rates compared to loans; potential for debt accumulation.
Bonds
Loans from investors that a business agrees to repay with interest over a fixed period.
Advantages of Bonds
Suitable for large-scale financing; clear repayment terms.
Disadvantages of Bonds
Regular interest payments create a financial burden; may affect reputation.
Equity Finance
Raising capital by selling shares or ownership stakes in the company.
Issuing Shares
A business sells shares of stock in exchange for investment capital.
Advantages of Issuing Shares
No repayment needed; attracts long-term investors.
Disadvantages of Issuing Shares
Loss of control; shareholders may expect dividends.
Venture Capital
Investment from external investors in exchange for equity, often providing mentorship.
Advantages of Venture Capital
Funds for high-growth potential businesses; offers expert guidance.
Disadvantages of Venture Capital
Loss of control; high expectations for returns.
Business Angels
Wealthy individuals investing their personal funds in exchange for equity or debt.
Advantages of Business Angels
Provide mentorship; may offer flexible terms.
Disadvantages of Business Angels
Partial control over business decisions.
Grants and Subsidies
Non-repayable funds given to businesses to support specific projects.
Advantages of Grants and Subsidies
No repayment obligation; fosters innovation.
Disadvantages of Grants and Subsidies
Highly competitive; specific conditions may apply.
Crowdfunding
Raising small amounts from a large number of people via online platforms.
Advantages of Crowdfunding
Access to large pools of investors; serves as a marketing tool.
Disadvantages of Crowdfunding
Not guaranteed funding; can be time-consuming.
Trade Credit
A business purchases goods/services and pays later, usually interest-free.
Advantages of Trade Credit
Improves cash flow; typically no interest if paid on time.
Disadvantages of Trade Credit
Late fees may apply; limited to specific suppliers.
Advantages of External Finance
Allows larger funding; access to expertise.
Disadvantages of External Finance
Repayment obligations for debt; possible loss of control.
