Choosing sources of finance Flashcards
(11 cards)
What do businesses consider when choosing sources of finance?
The type of business
Amount of money required
Level of risk involved
What are examples of internal finance?
Retained profit
Sale of assets
What are advantages of using retained profits as an internal source of finance?
No interest costs
Quick and convenient
No loss of ownership
What are disadvantages of using retained profits as an internal source of finance?
Limited availability
Shareholder dissatisfaction
What are advantages of using sale of assets as an internal source of finance?
Gets rid of unused assets
No repayments
What are disadvantages of using sale of assets as an internal source of finance?
One-time source of finance
May be hard to sell
What are examples of external finance?
Overdrafts
Bank loans
What are advantages of using overdrafts as an external source of finance?
Quick access to money
Interest only paid on the amount you use
What are disadvantages of using overdrafts as an external source of finance?
High interest rates
Only a short-term solution
What are advantages of using bank loans as an external source of finance?
Lower interest rates than overdrafts
Long-term finance
What are disadvantages of using bank loans as an external source of finance?
Not available to all businesses
Lengthy application process
