External sources of finance

An amount of money that can be applied for from a bank or financial institution. It will have to be paid back with interest.

Watch the video showing the difference between loans and equity:

Loans

A specialist loan for the purchase of a house or building. The interest rate on a mortgage is usually lower than on a loan but it is repaid over a much longer period of time.

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Venture capital

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Debt factoring and invoice discounting

Hire-purchase refers to receiving goods now and paying for them over a period of time. You will often see hire purchase schemes promoted by shops as 'buy now, pay later' schemes.

This is a way to procure equipment for a business without paying up front. It works much like hiring goods (e.g. hiring a car whilst on holiday). The business will receive the machinery or equipment and pay for the period for which it is used. It is beneficial as the business does not have to buy expensive equipment outright but can be more expensive in the long run.

This is when a business buys goods but has a ‘grace period’ before they need to be paid for – typically 30 days.

An amount of money that does not need to be paid back.

You can accept donations from friends or family as an investment into your business. It is a cheap source of finance but not everyone can give money to someone else without getting anything in return!

These are ways to raise money by asking people outside the business to invest.

Watch the video for more details:

Peer-to-peer lending and crowdfunding