external sources of finance

• 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