external sources of finance

Cards (42)

  • What are the two main types of external finance discussed?
    Grants and long-term finance options
  • What are the pros and cons of grants as a source of finance?
    Pros:
    • No repayment required
    • Generously provided by agencies

    Cons:
    • Intricate application process
    • Strict eligibility criteria
    • Funds must be used for specific purposes
  • Who typically provides grants?
    Government agencies or charitable organizations
  • What is a primary challenge associated with grants?
    The application process can be intricate
  • What does long-term finance refer to?
    Repayment periods spanning over a decade
  • What is a common example of long-term finance?
    Mortgages
  • How does a mortgage function as a long-term finance option?
    It allows borrowing over extended periods using property as collateral
  • What are the advantages of using a mortgage for financing?
    Prolonged repayment period and larger amounts
  • What are the downsides of mortgages?
    Significant interest accumulation and tedious process
  • What is share capital in the context of long-term finance?
    • Raising funds by selling shares
    • Investors gain ownership and expect dividends
    • Dividends paid only when profitable
    • Funds can be used at the company's discretion
  • What is a disadvantage of raising funds through share capital?
    It leads to diluted ownership
  • What happens when a business takes on new partners?
    It sells a portion of ownership for funds
  • What are the benefits of introducing new partners into a business?
    Immediate capital and new expertise
  • What is a potential downside of bringing in new partners?
    Loss of control over business decisions
  • Summarize the key points about grants, mortgages, share capital, and new partners as sources of finance.
    Grants:
    • No repayment, but complex applications

    Mortgages:
    • Long repayment, large sums, high interest

    Share Capital:
    • Diluted ownership, dividends when profitable

    New Partners:
    • Immediate capital, shared profits, loss of control
  • What is the typical repayment period for medium-term sources of finance?
    2 to 5 years
  • How does higher purchase work for businesses?
    Businesses make a deposit and monthly installments
  • What is a significant drawback of higher purchase agreements?
    Interest must be paid and ownership is delayed
  • What is the main advantage of leasing assets?
    No large upfront costs are required
  • What is a potential disadvantage of leasing assets?
    The asset is never owned by the business
  • What are loans typically used for in businesses?
    Startup costs and business expansions
  • What is a key difference between loans and higher purchase agreements?
    Loans provide immediate ownership of assets
  • What is peer-to-peer lending?
    Loans from individuals via online platforms
  • What is a disadvantage of peer-to-peer lending?
    Higher fees and interest rates may apply
  • What do business angels expect in return for their investment?
    A share of the profits
  • What is a potential conflict when working with business angels?
    They may want a say in business decisions
  • What is the typical duration for short-term sources of finance?
    Typically a year or less
  • What is a bank overdraft?
    A buffer when account balance is negative
  • What are the benefits of bank overdrafts?
    Quick to arrange and flexible in use
  • What is crowdfunding?
    Collective investment from many individuals
  • What is a risk associated with crowdfunding?
    Not meeting the funding goal
  • What is trade credit?
    Goods supplied with payment later
  • What is a benefit of trade credit?
    No interest is paid on the goods
  • What is a limitation of trade credit?
    Very short-term solution with limited finance
  • What are the pros and cons of higher purchase agreements?
    Pros:
    • Access to costly assets
    • Easier to obtain than loans

    Cons:
    • Interest must be paid
    • Ownership granted only after full repayment
  • What are the pros and cons of leasing assets?
    Pros:
    • No large upfront costs
    • Maintenance covered by leasing company

    Cons:
    • Asset never owned
    • Can be costlier than purchasing
  • What are the pros and cons of loans from banks?
    Pros:
    • Immediate ownership of assets
    • Versatile for various business needs

    Cons:
    • Interest rates apply
    • Can be challenging to secure
  • What are the pros and cons of peer-to-peer lending?
    Pros:
    • Easier qualification than traditional loans
    • Accessible for those with limited credit

    Cons:
    • Higher fees and interest rates
    • Not as regulated as banks
  • What are the pros and cons of working with business angels?
    Pros:
    • Quick funds and expertise
    • No direct repayment required

    Cons:
    • Share of profits taken
    • Potential for decision-making conflicts
  • What are the pros and cons of bank overdrafts?
    Pros:
    • Quick to arrange
    • Flexible use for cash flow

    Cons:
    • High fees and interest rates
    • Not suitable for large sums