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Financial Reporting L14 14/11/17 :<3: (Sources of finance (bank loan…
Financial Reporting L14 14/11/17 :<3:
Sources of finance
European Union
bank loan
advantages
access to reasonable amount of money
doesn't require ownership of business
relatively cheap
give business advice
disadvantages
fixed repayments
may have oneuros covenants that need to be met
could withdraw funding if covenants breached
other complications, e.g. security over assets
friends and family
advantages
cheap - may not charge interest
flexible repayments
disadvantages
may cause arguments among family / friends
can't necessarily give you expert help
may not have access to sufficient funds
investors
venture capitalist (issue equity)
advantages
access to large sums of money (possibly)
benefit of their experience
won't necessarily have to pay regular interest payments
disadvantages
require a large proportion of ownership of the business (meaning reduced profits attributable to the original business owner)
online funding
personal savings
advantages
no fixed interest repayments
can retain full ownership of the business
disadvantages
money no linger earning interest in the bank (opportunity cost)
may not have access to sufficient funds
may lose all money
limited to your own resources
Net realisable value: NRV = selling price for any cost of sell (for stock / inventory)
NPV = cost less accumulated depreciation (fixed asset)
Debt vs Equity
debt
secured
repayment is scheduled
held as liabilities
fixed interest
long term vs short term
equity
generally leave in business
higher risk
variable dividend
held as owners interest
usually long term