Sources of Finance

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  • External
    • Family and Friends
      • Limited
      • Pressure on relationships
    • Banks
      • Interest
        • Spread over period of time
        • Fixed rates
        • Paid regardless of financial performance
        • Charged penalty for early repayment
      • Financial advice
      • quick and easy
    • Peer to Peer Funding
      • Online
      • Borrowers given credit rating
    • Business Angels
      • High risk as business isn't established
      • Suport and expertise
      • Entrepreneur has to show good understanding of business
    • Other Businesses
      • May invest in other businesses with a view to higher potential returns than they're receiving with cash sat in the bank
      • Not repaid
      • No interest
      • Dual control of partership
      • Profits split
    • Crowd Funding
      • Involves raising finance from a large number of people often investing small amounts of money
      • Investor only tied into paying into their promised contribution if total amount is raised
    • Share Capital
      • Form of equity capital
      • Only pay dividends if profit is being made
      • Amount of dividend not fixed
      • Can raise large amounts of capital
      • No interest
      • Loss of ownership
      • Complex and costly
      • Threat of hostile takeover
    • Venture Capital
      • Look for high rate of return in specific time period
      • Potential for large sums of money for investment
      • Expertise
      • Easier to attract other sources of finance
      • Long and complex
      • Conflict risk
      • Expert financial projections required
      • Partial loss of ownership
      • Initially expensive
    • Sources of Finance
      • Internal
        • Sale of stock
          • Quick
          • Reduces cost associated with holding them
          • Sold for reduced price
        • Leasing
          • Use of up to date equipment
          • Payments spread
          • Expensive
          • Doesn't belong to firm
        • Sale of Assests
          • Quick
          • Can't use asset
          • More expensive in long run if have to rent it back
        • Retained profit
          • Small amount
          • Less dividends for shareholders
          • Don't pay back
          • No interest
    • Bank Overdraft
      • Firm will have money during period between money going out and money coming in
      • Interest
      • Expensive over a long period of time
    • Trade Credit
      • No interest
      • Discount given for cash payment is lost
      • Need to have the money when debt is due to be paid
    • Government Grants
      • Not repaid
      • Certain conditions have to be met

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