External Finance

Question 1

Define Over drafts

Answer 1

With agreement of the bank, a business can spend more money than it has in its account, resulting in a negative balance

Question 2

Define Trade credit

Answer 2

A period of time given to a customer between receiving the goods and payment being due. Often 30 days.

Question 3

Benefits of Trade Credit

Answer 3

• Suitable for buying raw materials from suppliers ​
• Can pay back after 30 days ​

Question 4

Drawbacks of trade credit

Answer 4

• Delays in payment can damage relationship with suppliers ​

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Question 5

Grants

Answer 5

A source of finance from government or a charity.

Question 6

Benefits of Grants

Answer 6

• Grants available for small businesses
• Industry specialists

Question 7

Drawbacks of Grant

Answer 7

• Given for social, environmental or economic benefits

Question 8

leasing

Answer 8

When a business rents resources such as property or equipment for a set period of time.

Question 9

Benefits of leasing

Answer 9

No large sums of money are needed to buy the equipment

Question 10

Drawbacks of leasing

Answer 10

• Over a long period of time leasing is more expensive ​
• Loans cannot be secured on assets which are leased

Question 11

Bank loans

Answer 11

A form of finance from a bank or finance institution with a set repayment plan.

Question 12

Benefits of Bank Loans

Answer 12

Entitled to sell assets to repay

Question 13

Drawbacks of Bank loans

Answer 13

Buisness has intrest to pay ​

Lender has no protection if the borrower fails to repay the money

Question 14

Venture capital

Answer 14

A private equity investor who may invest in companies showing high growth potential, the business may be considered too risky for other investors, in return for equity.

Question 15

Benefits of venture captial

Answer 15

Specialists funding small and medium sized businesses

Question 16

Drawbacks of venture capital

Answer 16

Investors have some control and entitled to share in profits

Question 17

Share capital​

Answer 17

A way of raising finance through sale of shares. If more shares are issued this will reduce the percentage of ownership held by each share.

Question 18

Benefits of share capital

Answer 18

Can raise very large amounts of capital

Question 19

Drawbacks of share capital

Answer 19

Only available to LTD and PLC​

Pressured to selling assets when large capital is required ​

Question 20

Crowd funding

Answer 20

Where many individuals invest into a business project on internet sites

Question 21

Benefits of crowd funding

Answer 21

Cheap and east to set up ​

Investors will be a large number of individuals ​

Transactions are online so no delay

Question 22

Drawbacks of crowd funding

Answer 22

Not suitable for raising large amounts of money