External finance - Banks - Sources of finance - National 5 Business management Revision - BBC Bitesize (2024)

FAQs

What is crowdfunding BBC bitesize? ›

Crowdfunding involves a large number of people investing small amounts of money in a business, usually online. Commonly used crowdfunding websites include Crowdfunder, GoFundMe and Kickstarter. Advantages of crowdfunding include: It acts as a form of market research.

A bank loan is a long term source of finance. It is a fixed amount of money that is given to a business by the bank that has to be repaid over time with interest.

Debentures are loans given to the business by individuals. Interest.

Share capital is money raised by shareholders through the sale of ordinary shares. Buying shares gives the buyer part ownership of the business and therefore certain rights, such as the right to vote on changes to the business.

External sources of finance refer to money that comes from outside a business. There are several external methods a business can use, including family and friends, bank loans and overdrafts, venture capitalists. and business angels, new partners, share issue, trade credit, leasing, hire purchase, and government grants.

Trade credit

with them. This source of finance allows a business to obtain raw materials and stock but pay for them at a later date. The payment is usually made once the business has had an opportunity to convert the raw materials and stock into products, sell them to its own customers, and receive payment.

Banks have a range of possible sources of funding available to them, including savers' retail deposits and investors' wholesale funding, as well as the bank's capital base.

Although banks do many things, their primary role is to take in funds—called deposits—from those with money, pool them, and lend them to those who need funds.

Loans allow for growth in the overall money supply in an economy and open up competition by lending to new businesses. The interest and fees from loans are a primary source of revenue for many banks as well as some retailers through the use of credit facilities and credit cards.

A statement of financial position, or balance sheet, considers key financial information that allows a business to monitor where the money comes from and where is has been spent, along with the overall value of a business.

Is crowdfunding external or internal? ›

An income statement shows

Sales revenue - the amount of money received for selling goods or services. Gross profit - the profit made from buying and selling goods. Gross profit is calculated by deducting cost of sales from sales revenue.

A company's share capital is the money it raises from selling common or preferred stock. Authorized share capital is the maximum amount a company has been approved to raise in a public offering. A company may opt for a new offer of stock in order to increase the share capital on its balance sheet.

As a business grows, it may choose to become a public limited company (PLC). In a PLC, shares. are sold to the public on the stock market close stock marketA centralised market where business shares are traded.. People who own shares are called 'shareholders'.

The main aims of a public limited company will be to increase and maximise its profit in order for the shareholders to receive a good return on their investment.

Crowdfunding is a way of raising money to finance projects and businesses. It enables fundraisers to collect money from a large number of people via online platforms. Crowdfunding is most often used by startup companies or growing businesses as a way of accessing alternative funds.

A high-profile example of crowdfunding is Oculus VR, now part of Meta (the parent company of Facebook). It produces virtual reality headsets and other hardware and software.

Crowdfunding is a way for companies and individuals to raise capital from a large group of investors, with contributions starting as low as $10. There are restrictions as to who is allowed to fund a new business and how much they're allowed to contribute.

About 24 percent of projects are fully funded. Based on these numbers, crowdfunding for a small business can be successful and help your business raise money without traditional debt. Before trying it for your business, learn about the benefits, hazards and regulations unique to this fundraising method.