External finance

• what is external finance?

  the ability to raise money from sources outside of the business
• what is peer-to-peer funding?

  the practise of an individual lending to others with whom they have no relationship or contact.
• what is business angels?

  wealthy individuals make personal investments into a start up business in return for a share of the business
• what is crowd funding?

  when a business venture is funded by raising small amounts of money from lots of people
• what is a loan?

  when a lender provides capital to a borrower and the borrower agrees to repay the borrowed amount with interest, over a period of time
• what is share capital?

  money raised from the scale of shares which is used to fund the future activities of the business
• what is venture capital?

  investment from an established business person or business into a new business in return for a percentage equity in the new business
• what is an overdraft?

  the facility to overspend on a current account up to an agreed sum
• what is leasing?

  a contract that allows the renting of assets from another party
• what is trade credit?

  an arrangement by a business to provide goods and services but the buyer does not have to make immediate cash payment
• what is a grant?

  fixed amounts of capital provided to businesses by the government or other organisations to fund specific projects
• what is family and friends?

  when your family and friends lend you money for a part of the business
• advantages of family and friends?

  • negotiate a payback period that suits everyone
  • quick
• disadvantages of family and friends

  • owner looses control
  • they get some profit
  • have a say in activities of business
  • cause arguments
• advantages of banks

  • access lots of money
  • will not become a shareholder
  • will only give money if your business has potential
• disadvantages of banks

  • strict payback plans
  • interest
• advantages of peer-to-peer funding

  • few financial costs
  • acts as a forum for business proposals
• disadvantages of peer-to-peer funding?

  • time dependent process
  • funding can be revoked
  • takes lots of time and effort
• advantages of business angels?

  • good final option
  • offer management advice
• disadvantages of business angels?

  • other businesses they have may be more important
  • loose control
  • can cause conflict
• advantages of crowd funding

  • few financial costs
  • acts as a forum for business proposals
• disadvantages of crowd funding

  • time dependent process
  • money can be revoked
  • takes time and effort
• advantages of other businesses

  • lots of funding available
  • can help firm grow
  • can give access to marketing powers and commercial contacts
• disadvantages of other businesses

  • loose control
  • can cause conflict
  • may loose customers if you change too much because of them
• short and medium term methods of finance?

  • overdraft
  • leasing
  • grants
  • trade credit
• long term methods of finance?

  • loans
  • share capital
  • venture capital