paper 2 sources of finance Flashcards
what reason might a business need for finance (5)
setting up a new business
expanding
recruiting
marketing
run the business
why might a business find it difficult to get a loan
a poor financial record
which sources of finance are not available to sole traders and partners (2)
cant take extra partners
cant sell shares
name sources of finance when they might be used and the type of business (9)
owners capital-start up or expansion- new or established
retained profit (money not given to owners) - buy expand or replace - established
sale of assets - replace develop - established
overdraft - day to day expenses - new and established
trade credit - buy stock - new established
take new partner - expand, replace - established
loan - start up, replace - new established
share issue ( new shares sold) - start up - replace - new established
crowd funding - start up replace expand - new and established
advantages disadvantages of owners capital as source of finance
advantages - no repayments
no interest
does not effect ownership and control
disadvantages - owner risks savings
might have enough savings
advantages and disadvantages of retained profit
advantages - no interest to repay
no need to repay money
no cost to raise finance
disadvantages - only available to business that has made a profit
advantages and disadvantages of sale of assets
advantages good if asset is no longer of use to business
disadvantage - can take time to sell the asset
may not be possible to find a buyer
advantages and disadvantages of overdraft
advantages - can meet short term cash flow
business can continue trading in short term
interest is only paid on amount borrowed
disadvantage - interest is charged on the daily amount owed can be expensive
advantages and disadvantages of trade credit
advantages - business can buy goods to sell on before paying supplier
helps a business if they have a temporary shortage of funds
period of credit is usually interest free
disadvantages - goods must be paid for even if not sold
interest charged if credit is not repaid within time limit
advantages and disadvantages of taking on a new partner
advantages - new partner may bring new skills
no cost to raise the finance
disadvantages - new partner may have a say in running of business
new partner will be entitled to share of the profits
advantages and disadvantages of loan
advantages - repayment is spread over time
business knows the amount to be paid in instalments
disadvantages - interest has to be paid
business may need to risk an asset as security
advantages and disadvantages of share issue
advantages - lot of finance can be raised from lots of investors
money does not have to be paid back
no interest is payable
disadvantages - dividends may need to be paid on shares
shareholders may have a say in running of company
business maybe taken over and existing shareholders no longer own the business
advantages and disadvantages of crowd funding
advantages - a lot of money can be raised from contributors
no security is needed for loans
disadvantages - interest will need to be paid on loans
profits may need to be shared
what is short term finance what are the internal and external sources
money needed for up to a year- pay day to day bills
internal owners capital or sale of assets
what are the time periods connected with finance
short medium and long term -
