A thing that is borrowed, especially a sum of money that is expected to be paid back with interest.
"Borrowers can take out a loan for £84,000"
Usually provided by banks.
Short term: 1 - 2 years.
Medium term: 2 - 5 years.
Long term: % 5+ years.
Usually secured by collateral.
Interest payable may be fixed or variable.
If interest rates increase this could be very damaging to a struggling business.
Share capital:
Share capital is the money invested in a company by the shareholders. Share capital is a long-term source of finance.
In return for their investment, shareholders gain a share of the ownership of the company.
Private limited company (Ltd): Can exchange shares for cash.
From private investors, business angels or venture capital businesses.
When this happens the original owners have less equity (share capital).
Public limited company (plc)
These are ltd businesses which have 'floated' on the London Stock Exchange, or smaller Alternative Investment Market (AIM).
Allowing greater ownership of the business can raise vast amounts of money.
Venture capital:
Businesses that invest in smaller, riskier businesses
which are established but are struggling to grow.
Large investments (£1m+ typically) in return for a large percentage of ownership.
Advantages / disadvantages of VC here.
Differences between Business Angels and Venture Capital from 1.49:
Overdrafts:
A facility that allows a business to become 'overdrawn'. (This means having a minus amount in a bank account).
Each overdraft will have a fixed limit.
There are severe financial penalties for exceeding this limit.
Interest is charged on a daily basis when a business is overdrawn.
An overdraft is the most common external source of finance.
Advantages / disadvantages of an overdraft facility here.
Leasing:
When cash flow is an issue, leasing an expensive vehicle or piece of equipment may be a better option than buying it.
Leasing is the equivalent to renting.
There will be a fixed monthly fee.
Over the life of the item the business may end up paying more - but it saves a large initial payment.
Advantages / disadvantages of leasing here.
Trade credit:
Buying stock or other items but not paying for an agreed number of days.
Advantages / disadvantages of trade credit here.
Grants:
Free money from central or local government or the EU.
Usually limited to certain industries (green technology) or location (areas of high unemployment).
Very difficult to get with lots of time consuming paperwork to complete.
