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Raising Finance

Raising Finance. AS Business Studies. Aims & Objectives. Aim: Understand methods of raising finance. Objectives: D efine overdrafts and venture capitalist Explain different internal and external methods of raising finance Analyse internal and external methods of raising finance. Starter.

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Raising Finance

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  1. Raising Finance AS Business Studies

  2. Aims & Objectives Aim: • Understand methods of raising finance. Objectives: • Define overdrafts and venture capitalist • Explain different internal and external methods of raising finance • Analyse internal and external methods of raising finance.

  3. Starter • On white boards • List as many internal and external sources of finance available for small businesses.

  4. Sources of Finance

  5. Bank Loans • Sum of money lent for a fixed period of time, repaid over an agreed schedule. • Price of loan is interest rate. • Longer term source of finance. • Rate of interest will depend on: • Size of loan • Level of risk • Length of the repayment period

  6. Advantage or Disadvantage? • The length of the loan can be matched to the length of the need of the loan. • A • Interest is paid regardless of whether the business is making profit or not • D

  7. Advantage or Disadvantage? • The interest is fixed for the period of the loan – the business can build into budgets. • A • Loan may have to be secured against personal assets • D / Depends on……. • Legal Structure

  8. Advantage or Disadvantage? • No need to pay the lender a % of the profits. • A • Length of the loan may turn out to be longer than the life of the asset purchased with it. • D • The lender does not have any decision making power • A

  9. Share Capital • Sale of part ownership of the business • Venture Capitalists • Business Angels • Share capital is never paid back • However, a % of profit paid to shareholder.

  10. Business Angels • Wealthy entrepreneur invests in small high risk businesses, and seeks a high return. • Business has high potential growth. • Provide advice to owners. • Only make small investments (£10,000-£250,000), whereas a venture capitalist would make larger ones (£250,000+)

  11. Raising Finance Post Financial Crisis • Businesses have struggled to raise finance from banks. • Banks lack confidence in lending credit. • High interest rates – pushingbusiness costs up and prices for consumers! • Perhaps other sources of finance more attractive?

  12. Worksheet • Scenario: You are working as a small business advisor for Business Link. You have the following clients scheduled for meetings today. All of your clients are seeking finance but are unsure on the best sources to use to raise it. You must prepare for the meetings using the following table, in order to advise them: Tasks: • Complete the table above, explaining your choice of source of finance in each case. • Explain the potential benefits of becoming a LTD company and obtaining share capital to the partners in business G. Feedback: Business Link Advice

  13. Plenary - Quiz • What is the difference between a business angel and an entrepreneur? • Give three sources of internal finance • Give three external sources of finance • A business wishes to buy new machinery, and estimates it will last 5 years. What is the best form of finance for this purchase? Why?

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