2.1.1 Internal Finance

Question 1

Internal Finance

Answer 1

Finance from within the business and from the owner

Question 2

Advantages of Internal Finance

Answer 2

• Reduce pressure on the firm as they don’t need to worry about repayments
• No monthly repayments and interest reducing a firm’s future costs

Question 3

Disadvantages of Internal Finance

Answer 3

• Internal finance may bring less capital into the firm than what external finance would have

Question 4

Owner’s Capital

Answer 4

The owner may use their own savings to start a business

Question 5

Retained Profit

Answer 5

After a year or more of trading, a firm may have some profits they are able to re-invest into their firm to help it grow

Question 6

Advantages of Retained Profit

Answer 6

• Reduce pressure on the firm as they don’t need to worry about repayments
• No monthly repayments and interest reducing a firm’s future costs

Question 7

Disadvantages of Retained Profit

Answer 7

• Profits may be low or there may be none at all if firm is struggling or new
• Can upset shareholders as the firm uses profits for re-investments and not giving out higher dividends

Question 8

Sale of Assets

Answer 8

A business can raise finance by selling assets

Question 9

Advantages of Sale of Assets

Answer 9

• The assets may have been idle and taking up capacity

Question 10

Disadvantages of Sale of Assets

Answer 10

• Assets are often used for collateral when banks give out loans meaning selling assets may reduce the chance a firm has of acquirinig a loan