external finance

external finance

is sourced from outside the business

family & friends

small business owners approach close relatives to invest in or lend money to a business.

+ very cheap source of funds.

- Relationships may be damaged if the money isn’t paid.

banks

banks provide several different kinds of loans to business.

+ may offer both short term finance (overdraft) and long term finance (loans)

+ Free advice

- business plan is required to access funds

- interest payments

peer to peer funding

a large number of private investors lend to a business

+ finance quickly available

- interest payments

business angels

individuals who specialise in making investments in start up or expanding businesses.

+ more willing to take a risk than banks

+ offer advice and guidance

- finding the right business angel may be hard - needs to have passion and expertise

crowdfunding

it allows businesses to access finance provided by a large number of small investors on online platforms.

+ creates an organic customer base

- businesses need to provide a persuasive business plan