Sourceof funding 2: Loan from the bank Abank loan is funds that you borrow from a bank with deadlines when you need topay it back there will also be interest on what you borrowed.If money is not paid backon time you could be charged extra.The bank could also take someextra funds to secure them in case if your business fails.Loans are very risky forbanks considering they have to wait long amounts of time for not that muchinterest.This is an external sourceof funding.
Nationwide bank have afixed APR of 3.4% and offer £1000 to £25,000 loans in the space of 12-60months. Sourceof funding 3: Bank Overdraft A bank overdraft issimilar to a loan but it is allowing a business or person to spend money fromtheir bank which they do not actually have. The money is then normally givensome time to be paid back but at a high rate of interest.
The bank could also askfor an immediate repayment which could cause problems if the person does nothave the required funds to pay back their bank.Nationwide has veryflexible policies on this and it could depends on a factor of things, such asyour income. It depends on the branch but you can make repayments daily,monthly or annually. Sourceof funding 4: Venture Capitalists Venture Capitalists Arepeople who will invest their money to an upcoming or already established smallcompany. They will in most cases ask for an equity stake in your business i.e10% share. This will give them some ownership of your business and the percentageof profits.The TV show Dragons Denbest shows an example of how it takes place.
A entrepreneur will approach theDragons (Large people in business with money and experience) and present theirbusiness ideas with their equity demands and how much money they want. If thedragons thinks it will make money and they like the business they will offerthem the money. (The dragons are not always right) By letting someone investin 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 3sources of funding, identifying the strengths (positives) and weaknesses (negatives)of each one.
If you are aiming toachieve a higher grade for this Assessment, you might also wish to identify whichsource of funding would be most appropriate for your own business enterpriseproject, giving reasons for your answer. 1. Bank loans Advantages Flexible: with bank loans, you make monthlypayments meaning that you cannot be caught off guard by the bank demandingtheir money at a random time like a bank overdraft. Banks don’t always monitorhow you use the money. This mean that you’re free to use the money however youwant (unless you are doing illegal activities of course) Cost effective: In the terms of interest rates, bankloans are normally the least costly options compared to bank overdrafts andcredit cards. As of July 2015 the average fixed interest rate for credit cardswas 13.02%, whilst certain banks have a maximum interest rate of 8% The lowerinterest rates will definitely save you money on bank loans.
1. Bank Loan Disadvantages. Strict Requirements: Because many bank require some sort ofbusiness or asset to allow people acceptance for loans people without any willfind it difficult to get their loan applications approved.
You can get anunsecured loan but the interest rates will be higher. Repayment Burden: People who are loaned money must make a regularpayment to their bank. If they fall behind they may face the worry of havingtheir property seized. Even if you do pay at a late date you could be reportedto a credit bureaus. This will impact your credit score negatively making itharder to get a loan in the future. 2. VentureCapitalists.
Business Expertise: Aside from the financial support,getting a venture capitalist can provide a growing business