2.1.2 external finance

• what types of external finance

  • family and friends
  • banks
  • p2p funding
  • business angels
  • crowd funding
  • share capital
  • leasing
  • venture capital
• family and friends ADV

  • small/no interest
  • more flexible in terms of payment
  • less likely to need a business plan
• fam and friends DISADV

  • Not alot of finance
  • could lead to conflict
• business angels adv

  • no repayments, as finance = a share in the business
  • business angels can provide skills and expertise
• business angels disadvantage

  • have to give up ownership
  • angels may want the business run differently to the owner
• crowd funding advantage

  • lots of finance can be raised
  • generates lots of publicity
• crown funding negative

  • not 100% ownership
  • may not be able to raise any finance
• loans advantage

  • large amounts of finance
  • 100% ownership
  • fixed interest rates = good forecasting
• loan negative

  • interst rates
  • may need collateral
  • intrest rates can change
• share capital adv

  • large amounts can be raised
  • avids debt
  • dividends only need to be paid if business is profitable
• share capital negative

  • dilution of control
  • dividends may need to be paid, could be alot depending on the profit
• venture capital adv

  • can raise alot
  • business can benefit from investor mentoring
• venture capital negative

  • high intrest
  • not 100% ownership
• overdraft adv

  • easy to arange
  • flexible
• overdraft negative

  • very high intrest rates
• leasing advantage

  • good for cash flow as dont have to pay full amount up front
• leasing negative

  • business never owns the asset
  • overall cost over time may equal the price of the asset
  • termination fees may be alot
• trade credit adv

  • helps improve cash flow
• trade credit negative

  • may not be able to pay in time
  • start ups have little/no trading history