External Sources Of Finance

Question 1

What is a mortgage

Answer 1

A legal agreement by which a bank lends money at interest in exchange for taking title of the debtors property

Question 2

Mortgage advantage

Answer 2

Spreads the payment out

Manageable and affordable

Question 3

Mortgage disadvantage

Answer 3

Carrying out debts for a long period of time

Remember to keep paying your repayments

Question 4

What is hire purchase

Answer 4

An agreement whereby a customer agrees to contact to acquire an asset by paying for a set period of time

Question 5

Hire purchase advantage

Answer 5

High spec assets

Low interest on other funding costs

Question 6

Hire purchase disadvantage

Answer 6

Dead money

At the end you don’t own the product

Question 7

What is owners capital

Answer 7

It is the money in the business that owners or shareholders have invested in it

Question 8

Owners capital advantage

Answer 8

The ownership percentage will always stay the same

Question 9

Owners capital disadvantage

Answer 9

Make important company decisions

Could lose control of your business if you sell too much stock

Question 10

What is a loan

Answer 10

A lump sum that you get from the bank and you have to pay back with interest

Question 11

Loan advantage

Answer 11

Easy way of getting money into the business

You can get a big amount

Question 12

Loan disadvantage

Answer 12

Interest is high

If you don’t pay back you can get into a debt cycle

Question 13

What is crowdfunding

Answer 13

This is a way for people to put money into business through websites

Question 14

Crowdfunding advantage

Answer 14

Easy way to get money

Quick to set up

Question 15

Crowdfunding disadvantage

Answer 15

Can take a long time to get a lot of money

Sometimes you might not even get anything

Question 16

What is venture capital

Answer 16

A form of private equity financing it that is provided by venture capital firms of funds to start-ups early-stage and emerging companies

Question 17

Venture capital advantage

Answer 17

Easy money
This can help your company to grow quickly
The money is yours to keep

Question 18

Venture capital disadvantage

Answer 18

High upfront costs

The investors own stake in the business

Question 19

What is debt factoring

Answer 19

A process whereby a business will raise an invoice for work completed passes to a debt factoring provider he will then chase the payment from the debited on behalf of their client

Question 20

Debt factoring advantage

Answer 20

Fast way of getting your money

Helps your business to get more income

Question 21

Debt factoring disadvantage

Answer 21

Reduce overall profit for business

Question 22

What is leasing

Answer 22

This means you pay over a period of time but has high interest and you never own the product

Question 23

Leasing advantage

Answer 23

Affordable

Can chose to pay the full amount at the end of the contract

Question 24

Leasing disadvantage

Answer 24

You never own the product

The interest and APR could be high

Question 25

What is trade credit

Answer 25

A loan extended by one trader to another when the goods and services are bought on credit

Question 26

Trade credit advantage

Answer 26

Short-term financing affordable for the business There’s not a big sum of money coming out

Question 27

Trade credit disadvantage

Answer 27

Fees and penalties Interest is high Loss of trade credit privileges

Question 28

What is a grant

Answer 28

A sum of money given to business by the government or other companies

Question 29

Grant advantage

Answer 29

Easy quick money | Can help your business to compete with other competitors

Question 30

Grant disadvantage

Answer 30

Need to do a lot of research before applying for a grant | Success rate is very low

Question 31

What is a donation

Answer 31

Money given to the business from the public so they can help the business to meet the aims and objectives

Question 32

Donation advantage

Answer 32

How achieve business aims and objectives | Easy quick money

Question 33

Donation disadvantage

Answer 33

Might need a lot of money to make an impact | Some donations won’t even be above a pound

Question 34

What is peer-to-peer lending

Answer 34

Type of business loan where a large number of private investors learn to a business usually through an online platform

Question 35

Peer-to-peer lending advantage

Answer 35

Quick easy money | They normally invest a lot of money

Question 36

Peer-to-peer lending disadvantage

Answer 36

They will want the money spent where they want it They will have an equity percentage in your business They can pull out any time

Question 37

What is invoice discounting

Answer 37

Another type of borrowing against two outstanding invoices and is used to help improve the companies cash flow (loan)

Question 38

Invoice discounting advantage

Answer 38

Helps achieve business ambitions | Helps business to grow

Question 39

Invoice discounting disadvantage

Answer 39

Have to have an A+ credit rating | Interest