Edexcel-External finance 2.1

Question 1

External

Answer 1

Sourced outside the business

Question 2

Family and friends

Answer 2

Small businesses approach close acquaintances to invest or lend money.

Question 3

Family and friends advantages

Answer 3

Cheap source
Beneficial for both if it’s just a share of business

Question 4

Family and friends disadvantages

Answer 4

Relationships may be damaged

Question 5

Banks

Answer 5

Provide several type of loans

Question 6

short term loans and finances examples

Answer 6

Overdrafts

Question 7

Long term loans and finances examples

Answer 7

Loans or mortgages

Question 8

Banks advantages

Answer 8

Can provide free advice
Can offer both short and long time finances

Question 9

Banks disadvantages

Answer 9

Interest is added
A plan is usually required

Question 10

Peer to peer funding

Answer 10

Individuals with available savings pool it in with others in a peer investment scheme.

Question 11

Peer to peer funding advantages

Answer 11

Loans made quickly
Share of business is good as no strings attached

Question 12

Peer to peer funding disadvantages

Answer 12

Charged small fee and interest as compensation

Question 13

Business Angels

Answer 13

Some individuals specialise in making investments in start-up or expanding businesses

Question 14

Business Angels examples

Answer 14

Dragons Den investors

Question 15

Business Angels advantages

Answer 15

Tend to be more willing to take a risk
Owners regain shares in the future

Question 16

Business Angels disadvantages

Answer 16

Finding the right angel with experience can be difficult
Involved in decision making

Question 17

Crowd Funding

Answer 17

Allows businesses to access finance provided by a large number of small investors on online platforms

Question 18

Crowd Funding e.g.

Answer 18

Kickstarter

Question 19

Crowd Funding advantages

Answer 19

Provides a form of free marketing
A good credit score is not required so new businesses can get the funding

Question 20

Crowd Funding disadvantages

Answer 20

Persuasive business plan needed to beat competitors
Potential negative reputation if business can’t attract crowd funding.

Question 21

Other businesses

Answer 21

Joint ventures with other businesses
Large businesses buy shares

Question 22

Other businesses examples

Answer 22

Owner of sports direct bought shares of debenhams and eventually took over

Question 23

Other businesses advantages

Answer 23

Access business and market knowledge
Access Large amounts of finance

Question 24

Other businesses disadvantages

Answer 24

Profits need to be shared
Decisions need to be agreed by all businesses

Question 25

Loans

Answer 25

A sum of money borrowed and repaid with interest.

Question 26

Loans advantages

Answer 26

Interest rates are fixed Repayments made in equal instalments

Question 27

Loans disadvantages

Answer 27

Fail to repay assets taken. increase gearing.

Question 28

Examples of loans

Answer 28

Mortgages Debentures

Question 29

Overdrafts

Answer 29

Arrangement to spend more money than in the account

Question 30

Overdrafts advantages

Answer 30

Aids cash flow Offers flexibility

Question 31

Overdrafts disadvantages

Answer 31

May be cancelled still have to pay fee of interest

Question 32

Share capital

Answer 32

Finance raised from the sale of shares

Question 33

Share capital advantages

Answer 33

Large amounts of capital raised Interest not payable

Question 34

Share capital disadvantages

Answer 34

Share holder involved in decisions

Question 35

Venture capital

Answer 35

Funds provided by specialist investor

Question 36

Venture capital advantages

Answer 36

Easy way to attract investments

Question 37

Venture capital disadvantages

Answer 37

Usually require a stake in the business and have some control

Question 38

Leasing

Answer 38

Regular payments for equipment

Question 39

Leasing advantages

Answer 39

Business does not own the asset

Question 40

Leasing disadvantages

Answer 40

More expensive in the long run

Question 41

Trade credit

Answer 41

Agreement to buy stock which are paid at a later date

Question 42

Trade credit advantages

Answer 42

Interest free

Question 43

Trade credit disadvantages

Answer 43

Discounts not available

Question 44

Grants

Answer 44

Governments and trusts may offer grants

Question 45

Grants advantages

Answer 45

Grants do not need to be repaid

Question 46

Grants disadvantages

Answer 46

Businesses have to use finances for intended purpouse