Internal & External finance

• Internal finance - Personal savings = Adv - Owner retains all profits + Power of the business, 1st option for most start-ups; Dis - Limited funding
• Retained profit - Adv - No interest to be paid, quick and convenient; Dis - Lack of dividends for potential shareholders, Once profit has been spent the business may need to spend a long time regaining enough profit
• Sale of assets - Adv - Raise money from unused equipment, have the option to lease back equipment may the business require it again; Dis - May not be able to get the full market value for assets, Permanent loss of equipment
• External finance = Bank loan - Adv - Easy and quick access, Can get a significant amount of money; Dis - difficult for new businesses to obtain, interest rates may be high
• Bank overdraft - Adv - Quick and easy access, Interest is only charged on what is borrowed; Dis - High interest rate if unpaid, Overdraft limit can be reduced at any point
• Venture capitalists/ Business angels - Wealthy entrepreneurs offer funding for a share in the business - Adv - Gain money quickly, entrepreneurs offer their experience and expertise; Dis - Owner loses control of the business, the entrepreneur may have a different vision for the business than the owner does
• Peer-to-peer lending (P2P) - A business obtains direct lending from a person or from a P2P business - Adv -Process can be done online and therefore is convenient, Quick way to obtain finance; Dis - less security, very high interest rates
• Crowdfunding - The public are asked to donate small amounts of money towards a project - Adv - Large sums of money raised, no repayment required; Dis - Time consuming process, lack of control over how funds will be used
• Government grants - Money given by government with no expectation of repayment - Adv - Doesn't have to be repaid, doesn't affect cash flow; Dis - Competition for limited resources, strict criteria must be met
• Trade credit - Business negotiates paying for raw materials/ liabilities over a period of time - Adv - Access to supplies whilst not having to make an immediate payment, no interest; Dis - Short term (must be paid off relatively quickly)
• Share capital - Sale of shares to the general public - Adv - No repayment or interest, very common for public limited companies; Dis - Loss of complete control of the business, Dividends will need to be paid to shareholders, No guarantee to who will be investing
• Leasing - A business 'rents' a fixed asset instead of outright owning one - Adv - Good for managing cash flow, An expensive piece of equipment doesn't have to be outright bought , Dis - Assets never owned, May be more costly long term as interest rates will be high