Page 51 - Business_Studies_F5

Student's Book Form Five

ownership, for instance, selling their shares Overdrafts are considered as a quick source
to other investors or as a return in the form of finance and easy to be acquired to meet
of dividends. unforeseen business expenditures. Further,

Venture capital offers a large amount of it increases cash flow to the business
capital to the business. Venture capitalists enterprise as borrowers may obtain this
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invest for ownership; hence, enterprises debt within a short time as it does not
are neither obliged to repay the invested require many formalities. Despite those
money nor make additional investments benefits of overdrafts, they are short-
by using their personal assets or loans. term borrowing that cannot be used by
The fact that they also invest into an the business enterprise as the main source
enterprise their own business expertise, of funds for expanding its operation. The
experiences, guidance, and connections; amount to be overdrawn is limited since
they help business enterprises to better the account holder cannot overdraw more
manage their risks and thus, increase than what a bank has allowed. Normally,
chances to grow. Despite these positive overdrafts hold high interest rate if not paid
factors, venture capital financing is not back in a short period of time compared to
easy to secure. Another drawback is that other forms of bank loans.
venture capitalists mostly invest in high- Secured loans
risk businesses with expectations for high
returns on invested capital. In addition, Secured loans are offered by lenders to the
entrepreneurs may lose their businesses borrowers with collateral like land, house
to these venture capitalists in an event of or vehicle. If the borrower defaults to repay
low performance. the loan, the assets can be possessed by the
lender. Examples of secured loans include
Overdrafts mortgage and business loans.
An overdraft occurs when a bank allows Loans help businesses to access capital
the account owner to overdraw. It occurs that may be used to finance business
when there is insufficient money in the expansion, smoothen operations, hire
account offered by banks to current account more workers, or purchase non-current
holders. This means that the account owners assets like equipment and machines. It
can withdraw more money than what also helps the business to maintain its
they actually have in their bank balance. ownership status because lenders are not
A business can use overdraft to pay part of the business. Financing medium-
suppliers, labour, or purchase different sized businesses through loans may be
resources for business. An overdraft is challenging because business assets may be
a flexible way of financing the business possessed by lenders if the business defaults
enterprise as it varies from time to time to repay the borrowed money, hence the
with the needs of the business. borrowers lose the businesses’ properties

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