2.1.2 External Finance

Question 1

What is external finance?

Answer 1

Finance from sources outside the business

Question 2

What are the advantages of using friends and family?

Answer 2

• cheap
  -no interest

Question 3

What are the disadvantages of using friends and family?

Answer 3

• could cause a loss of friendship
• could cause a family breakdown

Question 4

What is a bank overdraft?

Answer 4

When a business can spend more in their bank then what is available

Question 5

What are the advantages of a bank overdraft?

Answer 5

• flexible
• quick to arrange

Question 6

What are the disadvantages of a bank overdraft?

Answer 6

• bank can call in the money at any time
• high interest rates

Question 7

What is crowd funding?

Answer 7

Where a group of individuals come together to raise finance without the use of the bank

Question 8

what are advantages of crowd funding?

Answer 8

• provide a large sum of capital
• avoids the use of a bank
• quick

Question 9

what are disadvantages of crowd funding?

Answer 9

• may not raise desired amount
• may damage reputation

Question 10

What is a loan?

Answer 10

money lent to a company which needs to be paid back, usually with interest, over a set period of time

Question 11

what are the advantages of using a loan?

Answer 11

• large sum of money
• remain control

Question 12

what are the disadvantages of using a loan?

Answer 12

• high interest rates
• less flexible

Question 13

What is share capital?

Answer 13

Capital is raised throughout the sale of shares

Question 14

what are advantages of share capital?

Answer 14

• large sum of money
• flexible

Question 15

what are disadvantages of share capital?

Answer 15

• lose control

Question 16

What is a venture capitalist?

Answer 16

providers of funds for small to medium businesses that may be considered to risky for other investors

Question 17

what are the advantages of a venture capitalist?

Answer 17

• specialist investors
• quick access
• knowledge within industry

Question 18

what are the disadvantages of a venture capitalist?

Answer 18

• loss of control
• limited flexibility

Question 19

What is leasing ?

Answer 19

a contract to acquire the use of resources or equipment

Question 20

what are advantages of leasing?

Answer 20

• no large sum of money needed to buy resources
• flexibility

Question 21

what are disadvantages of leasing?

Answer 21

• no ownership
• can be expensive over a period of time

Question 22

What is trade credit?

Answer 22

a type of short-term financing offered by suppliers or distributors that allows a business to purchase goods or services now and pay for them later

Question 23

what are advantages of trade credit?

Answer 23

• easy access to items
• improved cash Flow management

Question 24

what are disadvantages of trade credit?

Answer 24

• interest costs
• risk of supplier dependency

Question 25

What is peer to peer lending?

Answer 25

where individuals lend to each other without prior knowledge of them

Question 26

what are advantages of peer to peer lending?

Answer 26

- avoids the use of banks

Question 27

what are disadvantages of peer to peer lending?

Answer 27

- cash may not be instant