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external sources of finance
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Micah owen
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Cards (42)
What are the two main types of external finance discussed?
Grants
and
long-term finance
options
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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
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Who typically provides grants?
Government agencies
or
charitable organizations
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What is a primary challenge associated with grants?
The application process can be
intricate
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What does long-term finance refer to?
Repayment periods spanning over a
decade
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What is a common example of long-term finance?
Mortgages
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How does a mortgage function as a long-term finance option?
It allows borrowing over extended periods using property as
collateral
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What are the advantages of using a mortgage for financing?
Prolonged
repayment
period and larger amounts
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What are the downsides of mortgages?
Significant
interest accumulation
and
tedious process
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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
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What is a disadvantage of raising funds through share capital?
It leads to
diluted ownership
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What happens when a business takes on new partners?
It sells a portion of
ownership
for funds
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What are the benefits of introducing new partners into a business?
Immediate
capital
and new
expertise
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What is a potential downside of bringing in new partners?
Loss of control over
business decisions
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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
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What is the typical repayment period for medium-term sources of finance?
2 to 5 years
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How does higher purchase work for businesses?
Businesses make a
deposit
and monthly
installments
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What is a significant drawback of higher purchase agreements?
Interest
must be paid and
ownership
is delayed
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What is the main advantage of leasing assets?
No large
upfront costs
are required
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What is a potential disadvantage of leasing assets?
The asset is never
owned
by the business
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What are loans typically used for in businesses?
Startup costs
and
business expansions
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What is a key difference between loans and higher purchase agreements?
Loans provide immediate ownership of assets
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What is peer-to-peer lending?
Loans from
individuals
via online platforms
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What is a disadvantage of peer-to-peer lending?
Higher fees and interest rates may apply
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What do business angels expect in return for their investment?
A share of the
profits
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What is a potential conflict when working with business angels?
They
may
want
a
say
in
business decisions
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What is the typical duration for short-term sources of finance?
Typically a
year
or less
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What is a bank overdraft?
A buffer when account balance is
negative
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What are the benefits of bank overdrafts?
Quick to
arrange
and flexible in use
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What is crowdfunding?
Collective investment from many
individuals
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What is a risk associated with crowdfunding?
Not meeting the funding
goal
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What is trade credit?
Goods
supplied
with
payment
later
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What is a benefit of trade credit?
No
interest
is paid on the goods
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What is a limitation of trade credit?
Very short-term solution with
limited finance
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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
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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
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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
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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
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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
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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
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