5.3a Sources of Finance Flashcards Preview

Business Studies AS > 5.3a Sources of Finance > Flashcards

Flashcards in 5.3a Sources of Finance Deck (28):
1

What does internal sources include?

- Founder finance
- Retained profits
- Debt factoring

2

What does external sources include?

- Bank loans
- Bank overdraft
- Venture capitalists

3

Short term finance definition

Finance intended for repayment within 12 months

4

Long-term finance definition

Finance intended for repayment after 1 year +

5

Capital expenditure definition

Spending on items that can be used again

6

Revenue expenditure

Spending on current, day to day costs e.g. raw materials

7

Debt factoring definition

When a factoring company buys the right to collect money from the credit sales of the business

8

How does debt factoring work?

The factoring company pays the business 80-90% of face value of the debts and then collects the full amount of debts itself

9

Advantages of debt factoring

- Improved cash flow in a short time
- Lower admin costs
- Increased efficiency

10

Disadvantages of debt factoring

- Loss of revenue
- High cost
- Customer relations problems

11

Advantages of bank overdrafts

- Flexible
- Interest is only paid on amount of overdraft being used
- Security is not usually required

12

Disadvantages of bank overdrafts

- Level of interest rate charged
- Flexible interest rates
- Banks can demand immediate repayment

13

Retained profit definition

Cash generated by the business when it trades profitably

14

Advantages of retained profit

- Cheap source
- No security required
- Management of dividend payments

15

Disadvantages of retained profit

- Impact on dividends to shareholders
- Misuse of funds
- Opportunity cost

16

Advantages of share captial

- Can be large
- Can be long term
- New shareholders can bring expertise

17

Disadvantages of share capital

- Complex to issue
- Usually dividends to pay
- Loss of ownership

18

Advantages of bank loans

- Easy for budgeting
- Lower interest rates
- Designed to meet company's needs

19

Disadvantages of bank loans

- Limitation on amount available
- Inflexibility
- Potential expense

20

Venture capitalists definition

High net worth individuals who invest in high growth businesses

21

Investment range for venture capitalists

£10,000 - £750,000

22

Venture capitalists are also known as

Business angels

23

Advantages of venture capitalists

- Suited to high risk companies
- Interest and dividends can be delayed sometimes
- Source of advice

24

Disadvantages of venture capitalists

- Some ownership is given up
- Excessive influence

25

Debenture definition

Long-term loan made to a business at an agreed fixed percentage rate of interest and repayable on stated date

26

Traditional length of debentures

25 years

27

Alternative sources of finance

- Sale and leaseback
- Debentures
- Mortgages
- Sale of assets
- Peer-to-peer lending
- Crowdfunding

28

Source of finance depends on

- Size/profitability
- Track record
- Legal form
- Amount required
- Level of risk involved

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