2.1 raising finance

Question 1

what is internal finance

Answer 1

funds within the business to fund expenses or growth

Question 2

what is owners capital

Answer 2

money invested in the business by its owners

Question 3

Advantages of owners capital

Answer 3

-cash is quick to access
-doesn’t need to pay anything back

Question 4

Disadvantages of owners capital

Answer 4

-loss for the business is loss for the owner
-no financial buffer

Question 5

What is retained profit

Answer 5

profits that business keeps after paying dividends, which can be reinvested back in the business for growth

Question 6

advantages of retained profit

Answer 6

-no repayment or interest
-business has full control over the money

Question 7

disadvantages of retained profit

Answer 7

-Shareholders may demand dividends, reducing the amount retained
-limited availability, retained profits may not be enough

Question 8

What are sales of assets

Answer 8

Business selling some of their fixed assets

Question 9

advantages of sale of assets

Answer 9

-cheap source as there is no interest to pay
-immediate cash flow

Question 10

disadvantages of sales of assets

Answer 10

-may not be easy to sell depending on what sell
-limited availability, once sold never available again

Question 11

What is external finance

Answer 11

The ability to raise funds from sources outside the business

Question 12

What is peer/family and friends

Answer 12

individuals who lend money to a peer wit who they have a relationship with

Question 13

Advantages of peer funding

Answer 13

-owner and peer can negotiate suitable payback period
-relatively quick process to get the money

Question 14

Disadvantages of peer funding

Answer 14

• if business pops of after time, origianal investor could want half of the business

Question 15

What are business angels

Answer 15

-wealthy individuals who invest into a business return for a share of the business

Question 16

Advantages of business angels

Answer 16

-when business exhausted, BA may be only option
-BA can offer management advice

Question 17

Disadvantages of business angels

Answer 17

-offer for any share which can conflict between management
-negotiate on deals that benefit them but not the business

Question 18

what is crowdfuding

Answer 18

when a business venture is funded by raining amounts of money from lots of people

Question 19

advantages of crowdfunding

Answer 19

-few financial costs involved
-acts as for for business proposals

Question 20

disadvantages of crowdfunding

Answer 20

-it is a time dependent process

Question 21

What is leasing

Answer 21

paying another company to use their assets

Question 22

advantages of leasing

Answer 22

-don’t have to pay large upfront sum, maintenance repairs included

Question 23

disadvantages of leasing

Answer 23

-can cost more on the long run

Question 24

What is a loan

Answer 24

fixed amount of money is borrowed on paid back over a period of time

Question 25

advantages of loan

Answer 25

-only have to pay back loan and no profits

Question 26

disadvantages of loan

Answer 26

-difficult to arrange, only able to provide loan if provider thinks business capable of paying the loan back

Question 27

what is share capital

Answer 27

money raised by selling shares in the business

Question 28

advantages of share capital

Answer 28

-shareholders can bring expenditure -money doesn't have to be paid back

Question 29

disadvantages of share capital

Answer 29

-selling shares are costly and time consuming

Question 30

what is venture capital

Answer 30

Venture capital is money given to new, fast-growing businesses in exchange for a share of the company. Investors hope to make a profit if the business does well

Question 31

advantages of venture capital

Answer 31

-business can benefit from expert advice from investors -doesn't need to be repaid back

Question 32

disadvantages of venture capital

Answer 32

-high risk of business failing

Question 33

What are grants

Answer 33

fixed sum of money given to business by the government

Question 34

advantages of grants

Answer 34

-don't need to pay back and is interest free

Question 35

disadvantages of grants

Answer 35

-long and time application process and strict criteria

Question 36

What are overdrafts

Answer 36

the bank allows the business to have a negative amount of money in their bank

Question 37

advantages of overdrafts

Answer 37

-easy to arrange and flexible

Question 38

disadvantages of overdrafts

Answer 38

-high rate of interest, so unsuitable for long term