External finance – other sources
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 limited company (ltd)A business that sells shares privately to invited members. or public limited companyA company where shares are offered to the public.. 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 |
Debentures
Debentures are loans given to the business by individuals. interestInterest is the annual charge for borrowing money. It is usually expressed as a percentage of the total borrowed. is paid annually and the loan is paid back in full at an agreed date in the future.
Unlike shareholders, debenture holders are guaranteed their interest payment each year but do not hold a share of the company.
| Advantages | Disadvantages |
| Control of the business is not lost | Interest must be paid even if the company makes a loss |
| Advantages | Control of the business is not lost |
|---|---|
| Disadvantages | Interest must be paid even if the company makes a loss |
Crowdfunding
Crowdfunding involves getting small amounts of finance from a large amount of people. This is usually done through social media or crowdfunding websites. Crowdfunding 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 |