1.3.4 sources of finance

• What are the short term sources of finance?

  Overdraft, trade credit
• What’s an overdraft?

  Lets you borrow more money than you have in your account
• What’s trade credit?

  An agreement with a supplier that allows a business to obtain raw materials and stock but pay for them at a later date
• What is a short term source of finance?

  A source of finance that is repaid immediately or quickly (usually within a year) and are used for costs
• What are long term sources of finance?

  Personal savings,

  Venture capital,

  Share capital,

  Loans,

  Retained profit,

  Crowd funding
• What is a long term source of finance?

  A source of finance that is repaid over a long period of time, usually used to expand a business
• What are personal savings?

  Money saved by individuals for future use - doesn’t cost the business, no interest charges
• What’s venture capital?

  Money invested in by an individual or group that is willing to take the risk of funding a new business in exchange for a percentage of the business
• What’s share capital?

  Money raised by shareholders through the sale of ordinary shares. buying shares gives the buyer part ownership of a business and gives them certain rights, such as the right to vote on changes to the business - this can slow down the decision process
• What are the advantages of share capital?

  It’s a permanent source of capital - owners cannot refund their shares,

  There are no dividends to be paid if the business has a poor year
• What are the disadvantages of share capital?

  It dilutes the control of the founders,

  The business becomes vulnerable for a takeover
• What’s a bank loan?

  Money lent to an individual or business that is paid off with interest over a period of time. A business has to apply for a loan - to make sure the loan can be paid back
• What’s retained profit?

  Accumulated earnings of a business that they can reinvest in it in order to expand in the future - doesn’t require interest payments or payment of dividends
• What’s crowdfunding?

  A large number of people investing small amounts of money in a business
• What are the advantages of crowdfunding ?

  It provides opportunities, acts as a form of market research - if people don’t invest the business idea isn’t attractive, more likely to fail
• What are the disadvantages of crowdfunding ?

  The business must be interesting, innovative for people to give money,

  Can be difficult to reach a funding target - lack of support, or interest