of funding 2: Loan from the bank
bank loan is funds that you borrow from a bank with deadlines when you need to
pay it back there will also be interest on what you borrowed.
If money is not paid back
on time you could be charged extra.
The bank could also take some
extra funds to secure them in case if your business fails.
Loans are very risky for
banks considering they have to wait long amounts of time for not that much
This is an external source
Nationwide bank have a
fixed APR of 3.4% and offer £1000 to £25,000 loans in the space of 12-60
of funding 3: Bank Overdraft
A bank overdraft is
similar to a loan but it is allowing a business or person to spend money from
their bank which they do not actually have. The money is then normally given
some time to be paid back but at a high rate of interest.
The bank could also ask
for an immediate repayment which could cause problems if the person does not
have the required funds to pay back their bank.
Nationwide has very
flexible policies on this and it could depends on a factor of things, such as
your income. It depends on the branch but you can make repayments daily,
monthly or annually.
of funding 4: Venture Capitalists
Venture Capitalists Are
people who will invest their money to an upcoming or already established small
company. They will in most cases ask for an equity stake in your business i.e
10% share. This will give them some ownership of your business and the percentage
The TV show Dragons Den
best shows an example of how it takes place. A entrepreneur will approach the
Dragons (Large people in business with money and experience) and present their
business ideas with their equity demands and how much money they want. If the
dragons thinks it will make money and they like the business they will offer
them the money. (The dragons are not always right)
By letting someone invest
in your business it brings new skills and ideas for your business to the table.
Its also a large sum of money injected into your business to help it grow
Now compare these 3
sources of funding, identifying the strengths (positives) and weaknesses (negatives)
of each one.
If you are aiming to
achieve a higher grade for this Assessment, you might also wish to identify which
source of funding would be most appropriate for your own business enterprise
project, giving reasons for your answer.
Bank loans Advantages
Flexible: with bank loans, you make monthly
payments meaning that you cannot be caught off guard by the bank demanding
their money at a random time like a bank overdraft. Banks don’t always monitor
how you use the money. This mean that you’re free to use the money however you
want (unless you are doing illegal activities of course)
Cost effective: In the terms of interest rates, bank
loans are normally the least costly options compared to bank overdrafts and
credit cards. As of July 2015 the average fixed interest rate for credit cards
was 13.02%, whilst certain banks have a maximum interest rate of 8% The lower
interest rates will definitely save you money on bank loans.
Bank Loan Disadvantages.
Strict Requirements: Because many bank require some sort of
business or asset to allow people acceptance for loans people without any will
find it difficult to get their loan applications approved. You can get an
unsecured loan but the interest rates will be higher.
Repayment Burden: People who are loaned money must make a regular
payment to their bank. If they fall behind they may face the worry of having
their property seized. Even if you do pay at a late date you could be reported
to a credit bureaus. This will impact your credit score negatively making it
harder to get a loan in the future.
Business Expertise: Aside from the financial support,
getting a venture capitalist can provide a growing business