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External finance, -family and friends - Coggle Diagram
External finance
overdrafts
Some months a business may need extra cash to tide it over until a better month. A loan is over many years so is not suitable.
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Once its arranged (say £2,000) on an account a business can dip into it or pay it back as they see fit
If the business goes over this amount the overdraft will be “unauthorised” and the business will be charged heavily
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venture capital
Venture capital is also known as private equity finance. Venture capitalists VCs will invest large sums of money in a business in return for shares in the company.
Typically, VCs will invest at least £50 000 in a small regional business although this can rise into millions of pounds.
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They look for a strong business plan, sound management and a proven track record, making it difficult for start-up firms.
trade credit
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The seller gives the buyer 30, 60, 90 days to pay
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grants
The government or the European Union provide financial help to businesses in some areas of the country, in an effort to overcome problems of unemployment.
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loans this is when businesses get money from the bank they are quick to set up. But are affected by interest rates if they borrow more the cost of interest will be more banks need a business plan to see how the business will pay back the money. Banks will ask for a security or collateral on a loan this is a house or another asset used to pay back the loan if it cant be payed with money.
Share capital In a public limited company one that has been floated on the stock market they can raise more finance to expand by having an ordinary share issue.
This is an external and long term method of finance but would only apply to a large business with a plc after its name
leasing this is when businesses think they need more equipment they may decide to lease equipment so it can be updated regularly they will never own the equipment but will get the option to change it.
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-banks
banks may lend a loan to start up or grow a business growth
Banks may also provide a business with an overdraft to help when they have cash flow problems
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-family and friends
private companies are able to raise finance by selling shares to friends
The benefit of this is the owner may still keep control of the business and may be better able to trust their business investors.
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