external finance

• crowd funding (source) = a way of raising money for a project by asking for donations from a large number of people usually online
• Business angles (source) = entrepreneurial individuals who provide capital in return for a proportion of the company equity
• Share capital (method) = the money invested in a company by the shareholders.
• Venture capital (method) = investing in a business that is in its early stages
• Trade credit (method) = ype of commercial financing in which a customer is allowed to purchase goods or services and pay the supplier at a later scheduled date
• adavantages of bank loans:

  • May offer both short term finance (e.g. overdrafts) and long term finance (e.g. loans or mortgages) if a business qualifies
  • Banks are often keen to provide free advice and guidance to businesses that use their services
  • Small sums may be borrowed from unsecured
• Disadvantages of bank loans:

  • A business plan is usually required to access bank finance
  • Banks can be cautious about lending to new, untested businesses
  • Businesses must be customers of the bank to access some loans
  • For larger amounts, businesses may need to provide collateral to be granted a loan
• Advantages of businesses angles:

  • Business angels tend to be more willing to take a risk than banks
  • Angels often offer advice and guidanceto the businesses in which they invest
  • Investment is usually for a determined period of time so owners regain shares in the future
• Disadvantages of businesses angles:

  • Finding the ‘right’ business angel can be challenging
  • Networking is vital when entrepreneurs seek this kind of investment
  • As business angels own a stake in the business, they may be involved in decision-making and will receive a share of business profits
• advantages of crowd funding:

  • Creates an organic customer base and the platform provides a form of free marketing
  • A good credit rating is not required so new businesses that lack a trading record can attract funding
• disadvantages of crowd funding:

  • Businesses need to provide a persuasive business plan to convince individuals to invest in their product as they will be competing with many other projects online
  • The potential for negative publicity if the project is not successful in attracting enough crowdfunding capital