chapter 1

Created by: Amy
Created on: 07-11-12 11:09

what are the two types of finance?

internal: from owner(s) and family, from the business (from profit) external: banks (bank loan/mortgage/overdraft), private equity capital, business angels

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advantages of bank overdraft: flexible, economical

disadvantages of bank overdraft: higher interest rate than bank loan, bank can ask for immediate repayment, security required

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advantages of bank loan: easier to budget, may be flexibility in repayment, favorable interest rate can be negotiated

disadvantages of bank loan: long term financial commitment, security required

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advantages of a bank commercial mortgage: easy to budget, if taken out when rates rates are low then the cost of borrowing is also low

disadvantages of bank commercial mortgage: long term financial commitment, security required

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advantages of ordinary shares: limited companies can potentially raise more finance compared to soletraders/partnerships, can attract new management with valuable skills, dividends vary depending on profits

disadvantages of ordinary shares: outsiders have an element of control, if a company goes bust the shareholders often lose out

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advantages of preference shares: unable to vote so no control within business, budgeting easier due to them being paid at a fixed rate

disadvantages of preference shares: ordinary shareholders may lose out as preference shareholders have to be paid first

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advantages of debenture stock: budgeting easier, no control and no voting power

disadvantages of debenture stock: interest will always have to be paid at the fixed rate even if company suffers a loss, if company goes bust the holder has better rights for repayment than ordinary shareholders

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what factors need to be considered when applying for finance?

purpose, amount, repayment, interest, security

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Other cards in this set

Card 2

Front

disadvantages of bank overdraft: higher interest rate than bank loan, bank can ask for immediate repayment, security required

Back

advantages of bank overdraft: flexible, economical

Card 3

Front

disadvantages of bank loan: long term financial commitment, security required

Back

Card 4

Front

disadvantages of bank commercial mortgage: long term financial commitment, security required

Back

Card 5

Front

disadvantages of ordinary shares: outsiders have an element of control, if a company goes bust the shareholders often lose out

Back

View more cards

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chapter 1