2.1.1 Internal & 2.1.2. External Finance Flashcards
(18 cards)
What are key considerations in choosing the right source of finance?
Factors include:
* How much finance is needed
* When to access it
* Challenges in maintaining control
* The purpose of the finance
What are the two options for when to access finance?
Options include:
* All at once
* Drip feed / as needed
What are some internal sources of finance?
Sources include:
* Sale of Assets
* Retained Profit
* Owner’s Capital
What is one advantage of using retained profit as a source of finance?
No interest costs involved
What is one disadvantage of using retained profit as a source of finance?
Opportunity cost of not reinvesting the profit elsewhere
What is meant by internal finance?
Finance generated from within the business, such as retained earnings or asset sales
Fill in the blank: The cost of bank finance incurs _______.
[interest costs]
What factors affect the type and amount of finance required?
Factors include:
* Purpose of finance (long-term vs short-term)
* Cost of finance
* Flexibility of repayments
* Business organizational structure
True or False: Limited companies find it easier to raise finance than sole traders.
True
What is a leaseback in the context of business finance?
A financial transaction where an asset is sold and leased back to the seller
What are the two primary uses of finance in a business?
To finance long-term assets and to increase short-term stocks
What is meant by external sources of finance?
Funds raised from outside the business to support operations and growth.
External finance includes loans, equity investments, and trade credit.
What is the difference between crowdfunding and P2PL?
Crowdfunding is when many individuals invest in a business, while P2PL involves individuals lending to other individuals.
P2PL stands for Peer-to-Peer Lending.
State two reasons a business angel would invest in a business.
- Gain more profit
- Help new entrepreneurs
Business angels often look for promising ventures to support.
What is the difference between an ordinary share and a preference share?
Ordinary shares have no guaranteed dividend, while preference shares offer a fixed rate of return when dividends are declared.
Preference shares are considered less risky than ordinary shares.
What is meant by capital gain?
Profit made from selling a share for more than it was bought.
Capital gains can significantly increase an investor’s return.
What are the main sources of external finance?
- Bank loans
- Trade credit
- Business angels
- Crowdfunding
- P2PL (Peer-to-peer lending)
- Share Capital
Each source has its own advantages and disadvantages.
True or False: Limited companies find it easier to raise finance than sole traders.
True.
The structure of a limited company often provides more options for raising funds.
