External finance – Other sources
Loan from family or friends
Businesses can obtain a loan from family or friends that may not need to be paid back or are paid back with little or no interest charges.
| Advantages | Disadvantages |
| May not need to be paid back | Money may be lost if business is not successful |
| Arguments may occur between family members |
| Advantages | May not need to be paid back |
|---|---|
| Disadvantages | Money may be lost if business is not successful |
| Advantages | |
|---|---|
| Disadvantages | Arguments may occur between family members |
Grant
A grant is a fixed amount of money usually awarded by the government, EU (European Union) or charitable organisations. Grants are given to a business on the condition that they meet certain criteria such as providing jobs in areas of high unemployment.
| Advantages | Disadvantages |
| Does not need to be paid back | Business needs to meet certain criteria |
| It is time-consuming to apply for grants and to complete the paperwork |
| Advantages | Does not need to be paid back |
|---|---|
| Disadvantages | Business needs to meet certain criteria |
| Advantages | |
|---|---|
| Disadvantages | It is time-consuming to apply for grants and to complete the paperwork |
Share issue
Share issue is a source of finance that is only available to private or public limited companies. Such businesses can decide to issue more sharesA unit of ownership in a company. in the company and obtain finance from their sale.
| Advantages | Disadvantages |
| Finance raised does not need to be paid back | Shareholders need to be paid a dividend each year |
| Large amounts of finance can be raised | Shareholders become part owners of the business |
| Advantages | Finance raised does not need to be paid back |
|---|---|
| Disadvantages | Shareholders need to be paid a dividend each year |
| Advantages | Large amounts of finance can be raised |
|---|---|
| Disadvantages | Shareholders become part owners of the business |
Crowd funding
Crowd funding involves getting small amounts of finance from a large amount of people. This is usually done through social media or crowd funding websites. Crowd funding investors may:
- donate money
- get rewards for their investments
- receive a share of the profits
| Advantages | Disadvantages |
| Access to large amount of investors | A public request for investment risks your project being copied by competitors |
| Fast way to raise finance | If the targeted amount isn’t reached the money is returned to investors and the business gets nothing |
| Advantages | Access to large amount of investors |
|---|---|
| Disadvantages | A public request for investment risks your project being copied by competitors |
| Advantages | Fast way to raise finance |
|---|---|
| Disadvantages | If the targeted amount isn’t reached the money is returned to investors and the business gets nothing |
Venture capital
Venture capital is money that investors provide to a company that is starting up or expanding. Venture capital is usually used when there is an element of risk with the business.
| Advantages | Disadvantages |
| Available for more risky investment | Venture capitalists may want a share of the business meaning some control may be lost |
| A larger return may be required due to the high risk nature of the investment |
| Advantages | Available for more risky investment |
|---|---|
| Disadvantages | Venture capitalists may want a share of the business meaning some control may be lost |
| Advantages | |
|---|---|
| Disadvantages | A larger return may be required due to the high risk nature of the investment |