raising finance

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  • Created by: amy
  • Created on: 17-05-13 11:37

Key terms

  • ORDINARY SHARE CAPITAL- raising capital via selling shares and part ownership of the company to outside investors who are entitled to a share of the profits via dividends.
  • OVERDRAFT- a short-term source of finance that allows a business to spend more than they have in their current account up to an agreed limit. Interest is charged daily.
  • BANK LOAN- a medium to long-term source of finance which will require some form of collateral and for which interest is charged.
  • PERSONAL EQUITY- personal sources of finance generated by the owner of the business
  • VENTURE CAPITAL- the provision of finance and advice by specialist firms to 'high risk' businesses in return for share capital and the prospect of future high returns.
  • MORTGAGE- a specialised long-term source of finance used for the purposes of buying property.
  • BUSINESS ANGEL- a private individual willing to offer both advice and financial support to a risky business in return for share capital or a share in the profits.
  • CAPITAL EXPENDITURE- spending upon fixed assets such as land, building and machinery.
  • REVENUE EXPENDITURE- spending upon day-to-day items used in the operations of a business e.g. stationary and stock.
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Key terms

  • ORDINARY SHARE CAPITAL- raising capital via selling shares and part ownership of the company to outside investors who are entitled to a share of the profits via dividends.
  • OVERDRAFT- a short-term source of finance that allows a business to spend more than they have in their current account up to an agreed limit. Interest is charged daily.
  • BANK LOAN- a medium to long-term source of finance which will require some form of collateral and for which interest is charged.
  • PERSONAL EQUITY- personal sources of finance generated by the owner of the business
  • VENTURE CAPITAL- the provision of finance and advice by specialist firms to 'high risk' businesses in return for share capital and the prospect of future high returns.
  • MORTGAGE- a specialised long-term source of finance used for the purposes of buying property.
  • BUSINESS ANGEL- a private individual willing to offer both advice and financial support to a risky business in return for share capital or a share in the profits.
  • CAPITAL EXPENDITURE- spending upon fixed assets such as land, building and machinery.
  • REVENUE EXPENDITURE- spending upon day-to-day items used in the operations of a business e.g. stationary and stock.
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Personal Sources in Finance

Personal Savings

  • No interest needs to be paid
  • might not have enough
  • opportunity cost!

Mortgages

  • can borrow a reasonable amount of capital at a cheaper rate than a normal loan
  • if the business fails your own home is at risk!
  • Borrow from family and friends
  • might not have to pay interest
  • can add stress and strain to relationships
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Ordinary Share Capital

  • only available to incorporated businesses
  • tends to be a major source of finance for larger firms
  • there is limited liability
  • there is a risk of losing some control to shareholders and the original aims of the business might be lost in the drive towards profits.
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Loan Capital

  • Bank Loans
  • repayments and interest rates are known helping with budgeting
  • the bank can also provide advice and support
  • the size of the loan can be matched to the needs of the firm
  • loans offer limited flexibility and the size of the loan is dependant upon levels of available collateral
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Venture Capital

  • money offered to 'high risk' firms rejected by banks
  • cash provided through a mixture of loan and share capital
  • it is in the venture capitalist's interests to provide help and advice
  • firms have to be prepared to lose significant levels of control
  • venture capitalists might demand high returns and have a large influence on daily affairs
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Capital and revenue expenditure

Long term finance is more appropriate when purchasing capital items such as land, buildings, machinery, vehicles etc.

Long Term sources of finance (3-5 years)

  • share capital
  • loans
  • venture capital
  • personal sources

 

If you are mainly spending money on revenue items such as stock and wages then these offer short-term returns and therefore short-term sources of finance are more appropriate.

Short Term sources of finance (1 year)

  • Personal Sources
  • Bank Overdraft
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Choosing a source of finance

  • Only Ltd's or Plc's can sell shares
  • Sole traders and partnerships are more reliant upon personal sources of finance and banks
  • Consider how much money is required-if it is a large amount then a long-term sources of finance will be most appropriate
  • How much risk is there for the lender? If the firm is high risk then venture capital might be used
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Comments

davidsalter

This set of 8 revision cards details the different methods for raising finance. It can also be used to test yourself.

SamPringle

would be more useful if more effort was put into this but whatever my boyfriend likes this

Adam "Inbred" Smith

I disagree, this worse than if I **** on 8 blank revision cards. Utterly worthless tripe

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