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Questions and Answers
What is one significant disadvantage of accepting complex agreements in startup financing?
They can restrict future fundraising or decision-making.
List one advantage of leasing equipment for new businesses.
Leasing is easy for new businesses to acquire.
What is a major benefit of obtaining grants for a business project?
There is no need for repayments or interest rates.
Explain a potential drawback of relying on grants for funding.
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What factors should a business consider when choosing between short-term and long-term financing?
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What are the main advantages of using friends and family for financing?
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What is a significant disadvantage of peer-to-peer lending?
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How do business angels typically engage with startups?
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What is the primary difference between ordinary shares and preference shares?
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What role does venture capital play in the growth of companies?
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Study Notes
Friends and Family
- Cheaper if interest rates are lower
- No repayments if gifted
- No stake in business required
- Can lead to loss of friendship or family relationship breakdown
Peer-to-Peer Lending
- Individuals lend money to each other
- Sites charge 1% commission
- Lender can choose borrower
- Loans are unsecured
- Takes place online
- No government protection
Business Angels
- Invest between £1,000 - £100,000+
- Usually for an exchange of stake in the business
- Angels and business owner must share interests and vision
Crowdfunding
- Individuals or businesses raise small amounts from a large group
- Commonly used for creative projects, startups, charities, and personal needs
Bank Loan
- Unsecured loan
- Quick to obtain
- High interest due to high risk
- No collateral required
- Based on borrower creditworthiness, financial history, and income
Mortgages
- Secured loan
- Lower interest due to lower risk
- Collateral is required
Ordinary Shares
- No guaranteed dividends
- Voting rights
Preference Shares
- Fixed dividends
- No voting rights
Deferred Shares
- Held by company founders
- Dividends received after ordinary shares are paid a minimum amount
Venture Capital
- Investors take an active role in the company
- Invest after initial stage and prefer technology
Venture Capital Advantages
- Access to capital
- Expertise and mentoring
- Faster scaling
Venture Capital Disadvantages
- Complex agreements restrict future fundraising
- Loss of control over decision making
- Pressure for high growth
Lease
- Users do not bear maintenance or repair costs
- No large sums needed to buy or use equipment
- Easy for new businesses to acquire
- Leasing companies have up-to-date equipment
Lease Disadvantages
- More expensive than buying equipment
- Leased equipment cannot be used as collateral
Grants
- No repayments required
- Formal agreement for specific projects
- Funds have a specific time frame for usage
Grant Advantages
- Businesses can receive generous funds
- Cheaper due to no interest or repayments
- Minimized risk due to no collateral
Grant Disadvantages
- Future grants may be lost if the project fails
- Time-consuming research on granting agencies can be costly
Choosing Appropriate Finance
- Short-term or long-term needs
- Business financial position (collateral ability)
- Legal status of the business (limited or unlimited)
- Cost
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Description
Explore various financing options, including friends and family loans, peer-to-peer lending, business angels, crowdfunding, bank loans, and mortgages. This quiz highlights the advantages and disadvantages of each method, providing insight into their implications on finances and relationships.
