3.1.3
External Finance 2
External Sources of Finance
External Sources of Finance
External sources of finance raise finance (money) from a third party. The finance can be used to fund large, long-term investments. However, external finance can be more costly, because loans usually charge interest (which isn't paid if a company funds growth with retained earnings). Some sources of external finance are:


Business angels
Business angels
- Businesses can obtain finance through business angels.
- A business angel is usually an experienced and affluent individual who provides funding in exchange for ownership.
- This source of finance has advantages and disadvantages:
- Business angel funding involves transferring some ownership which can reduce the original owner’s control.
- Business angel funding means that businesses do not have to pay interest.


Crowdfunding
Crowdfunding
- Businesses can obtain funding through crowdfunding. Websites like Seedrs and Kickstarter offer crowdfunding.
- Crowdfunding refers to raising finance by allowing large numbers of people to donate often small sums of money to a project or venture.
- This source of finance has advantages and disadvantages:
- Crowdfunding means that a business owner can retain their existing ownership as the source of finance does not require the sale of shares of the transfer of some ownership.
- Crowdfunding can take a long time and may be unsuitable for businesses that need to access funding quickly.


Example of crowdfunding
Example of crowdfunding
- For example, GoFundMe is a crowdfunding platform that allows individuals and businesses to share information relating to a new product or proposed venture.
- Other people can then decide to donate to the individual or business should they decide to do so.
- People often make donations in return for a free trial or to access a pre-release of the product should the venture be successful.
1Exploring Business
1.1Features of Business Organisations
1.2Organisation of Businesses
1.3Business Environment
1.3.1External Influences
1.3.2Political & Legal Change
1.3.3Economic Environment
1.3.4Social & Technological Environment
1.3.5Lifestyle & Technological Environment
1.3.6Corporate Social Responsibility
1.3.7The Competitive Environment
1.3.8Innovation
1.3.9Risk & Uncertainty
1.3.10Porter's Five Forces
1.3.11SWOT Analysis
2Marketing Campaigns
2.1Marketing
3Business Finance
3.1Sources of Finance
3.2Financial Planning
3.3Financial Statements
4International Business
4.1Globalisation
4.2International Business
4.3International Economic Environment
4.4Factors Affecting International Business
5Principles of Management
5.1Management & Leadership
5.2Theories of Motivation
6Business Decision Making
6.1Business Principles & Practices
6.2Quality Management
6.3Human Resources
6.4Documents & Business Decisions
Jump to other topics
1Exploring Business
1.1Features of Business Organisations
1.2Organisation of Businesses
1.3Business Environment
1.3.1External Influences
1.3.2Political & Legal Change
1.3.3Economic Environment
1.3.4Social & Technological Environment
1.3.5Lifestyle & Technological Environment
1.3.6Corporate Social Responsibility
1.3.7The Competitive Environment
1.3.8Innovation
1.3.9Risk & Uncertainty
1.3.10Porter's Five Forces
1.3.11SWOT Analysis
2Marketing Campaigns
2.1Marketing
3Business Finance
3.1Sources of Finance
3.2Financial Planning
3.3Financial Statements
4International Business
4.1Globalisation
4.2International Business
4.3International Economic Environment
4.4Factors Affecting International Business
5Principles of Management
5.1Management & Leadership
5.2Theories of Motivation
6Business Decision Making
6.1Business Principles & Practices
6.2Quality Management
6.3Human Resources
6.4Documents & Business Decisions
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