External Finance (2.1.2)

Question 1

What are the 6 Sources of Finance?

Answer 1

-Friends +Family
-Banks
-Peer-to Peer funding
-Business Angels
-Crowdfunding
-Other businesses

Question 2

What are the 7 Methods of Finance?

Answer 2

-Loans
-Share Capital
-Venture Capital
-Overdrafts
-Leasing
-Trade Credit
-Grants

Question 3

What is the source of finance Family and Friends?

Answer 3

Its investment from family and/or friends

Question 4

What are the advantages of using Family and Friends as a source of finance?

Answer 4

-Quick + Easy
-Access to large sums
-Keep up with trends

Question 5

What are the disadvantages of using Family and Friends as a source of finance?

Answer 5

-Could be limited
-Giving up equity
-Loss of control

Question 6

What is the source of finance Banks?

Answer 6

Borrowing of loans, overdrafts or credit

Question 7

What are the advantages of using Banks as a source of finance?

Answer 7

-Quick + Easy
-Access to large sums
-Keep up with trends

Question 8

What are the disadvantages of using Banks as a source of finance?

Answer 8

-Interest Repaid
-Cash Flow worries
-Large Sums owned

Question 9

What is the source of finance Peer-to-Peer?

Answer 9

Borrowing of loans from individuals

Question 10

What are the advantages of using Peer-to-Peer as a source of finance?

Answer 10

-Quick + Easy
-Access to large sums
-Keep up with trends

Question 11

What are the disadvantages of using Peer-to-Peer as a source of finance?

Answer 11

-High interest repaid
-Cash flow worries
-Large sums owed

Question 12

What are business angels as a source of finance?

Answer 12

Investment from wealthy investors

Question 13

What are the advantages of using business angels as a source of finance?

Answer 13

-Access to large sums
-Expertise
-Keep up with trends

Question 14

What are the disadvantages of using business angels as a source of finance?

Answer 14

-Giving up equity
-Large sums owed
-Loss of control

Question 15

What is Crowdfunding as a source of finance?

Answer 15

Lots of small investors

Question 16

What are the advantages of using Crowdfunding as a source of finance?

Answer 16

-Adds up to large sums
-No repayment
-Keep up with the trends

Question 17

What are the disadvantages of using Crowdfunding as a source of finance?

Answer 17

-Risk reputation damage
-Need strong values
-Competitive

Question 18

What are Loans?

Answer 18

Type of credit vehicle in which a sum of money is lent to another party in exchange for future repayment of the value or principle amount. Interest is also added to the principal value which must be paid in addition

Question 19

What is Share Capital?

Answer 19

Its a funding of a company through issuing common or preferred stock

Question 20

What is Venture Capital?

Answer 20

Form of private equity and a type of financing that investors provide to startup companies and small businesses that are believed to have a long-term growth potential. Generally comes from well-off investors, investment banks and any other financial institutions

Question 21

What is an Overdraft?

Answer 21

Occurs when there isn’t enough money in an account to cover a transaction or withdrawal, but the bank allows the transaction to occur. Extension of credit granted when an account reaches zero.

Question 21

What is Leasing?

Answer 21

Type of Asset finance that allows firms or individuals to possess and control an asset during an agreed term, while paying rent or installments covering depreciation of asset and interest to cover capital cost

Question 22

What is Trade Credit?

Answer 22

An agreement made between two businesses that allows one business (customer) to purchase goods or services from another (supplier) without paying cash up front, and instead pay at a later date

Question 23

What are Grants?

Answer 23

Payments provided by either the Government or a private organization for a specific purpose, such as training, expansion or R+D. You don’t have to pay it back so differs from ever other form of finance.