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Created with Fabric.js 1.4.5 There are many possible sources of finance who offer immediate cash but for different payments in return. Some want part ownership through shares and others charge interest on money borrowed. Blue - Money for shares Green - Money given freely Orange - Payment via intrest Reference: Raising Finance How do start-ups start out? Investment FinanceVenture capitalists (companies) buy shares in promising businesses - New skills and business links- No repayment- Lose full ownership of business- Make joint decisions Crowd FundingThe public contribute small amountsUsually through a website (kickstarter)- Raises finance quickly - Raise product awareness- Idea easily copied if not patented- Only pays out if the target is reached GrantsFree money from governments or Charities- No interest and no shares sold- Highly competitive- Takes time to apply and be awarded- Situational Has to be used for specific project or works not just running costs Leasing and asset financeRenting assets (e.g. machinery, vehicles computers) to save money in buying them- Access to higher quality resources than you might be able to buy- Fixed interest rates usually- No personal collateral risk- Difficult to cancel early- Renters are responsible for equipment failure LoansCash now paid back with interest later- Bank cant demand it back- Bank has no ownership- Collateral might be necessary e.g. your house- Not flexible Charges for early repayment - Drain on cash flow Sources of Finance OverdraftsTemporarily bank account deficit. Agreed time of repayment with the bank- Cheaper than a loan in the short term - Quick to get- Won't be charged for early repayment- Charges if used for long periods- Bank can ask for money back at any point Invoice financingA bank buys your unpaid invoices for a feeI.e. They give you the money a customer owes and recover the money when the customer pays - Banks profit by interest and additional fees- Fast influx of cash in the short term - Money is lost overall in feesType1 - Factoring The bank collects money- Better negotiation and credit checks on customers- Danger of developing a bad business reputationType2 - Discounting You collect money yourself - Customers wont know you're in financial trouble- Better business relationship
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