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A Level Business Studies - Accounting And Finance > External Sources Of finance > Flashcards

Flashcards in External Sources Of finance Deck (24)
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What are the 9 sources of external finance (O, TC, L, HP, BL, G, SI, M, VC

1. Overdraft
2. Trade credit
3. Leasing
4. Hire purchase
5. Bank loan
6. Grant
7. Share issue
8. Mortgage
9. Venture capital


Define overdraft

An overdraft is where you take more money out than the account holds


Define trade credit

Trade credit is where suppliers let you buy now and pay later


Define leasing

Leasing is renting out property


Define hire purchase

Hire purchase is when buying expensive products you make an initial payment and pay the rest in instalments


Define bank loan

A bank loan is where the bank gives you money and you pay it back over a medium to long term basis with added interest costs


Define grant

A grant is where a sum of money is given by the GVMT to a firm for a particular purpose


Define share issue

A share issue is where companies pass new shares onto shareholders


Define mortgage

A mortgage is where you receive a lend to buy property and pay it back over a medium to long term period with added interest payments


Define venture capital

A venture capital is a body that invests in your business and you buy that investment back after a period of time


Name 2 benefits of overdraft

1. Cheap to organise
2. Reasonably easy to obtain


Name 2 disadvantages of using overdraft

1. Can become expensive if the interest payments build up
2. The bank may reduce the level of overdraft your able to take out


Name 2 benefits of using trade credit

1. Good cash flow for the business
2. Helps make sales when you can’s afford supply currently


Name 2 disadvantages of using trade credit

1. Long term expense to the business
2. If the firm misses an instalment then they may loose the supplier


Name 2 benefits of grants

1. Doesn’t cost the firm any money to obtain
2. Helps businesses grow


Name 2 disadvantages of grants

1. Have to use it for the purpose the GVMT wants
2. Takes a long time to receive a grant


Name 2 benefits of share issues

1. Can obtain wealthy shareholders
2. Came access huge finances
3. Excellent publicity for free (in the news)


Name 2 disadvantages of share issue

1. May not be a buyer for the shares
2. Means for a loss of business control
3. Shares loose value


Name 2 benefits of leasing

1. No longer responsible for the maintenance costs
2. Good for cash flow


Name 2 disadvantages for leasing

1. Restricted with what you can do with the property by the contract
2. Maintenance costs are built into the lease price


Name 2 advantages of loans/mortgages

1. Makes purchases more affordable
2. Can be easy to obtain if show good financial records
3. Saves time as there is no saving time involved


Name 2 disadvantages of using loans/mortgages

1. Long term expense to the business
2. Can be rejected if poor financial records
3. Can have high interest payments


Name a benefit of venture capital

Money and expertise in one


Name a disadvantage of using venture capital

Can be difficult to obtain if there aren’t buyers