Flashcards in Finance Deck (18):
Name 4 sources of finance.
Describe what a loan is.
From a bank or another financial institution.
Describe what a Government Grant is.
Available for specific reasons, eg expanding in a deprived area.
Describe what retained profits are.
Profits which have been kept back from previous years.
Describe what a Bank Overdraft is.
Money obtained from a bank which has to be repaid with interest over an agreed number of years.
Give an advantage and a disadvantage of Owner's Capital.
-The money does not have to be repaid
-No interest has to be paid.
-May not have enough money.
Give an advantage and a disadvantage of a Bank Loan.
- The money can be obtained in one lump sum.
-Repayments can be spread over several years.
-The loan must be repaid-with interest
Give an advantage and a disadvantage of a Bank Overdraft.
- Useful as a short term source of finance t overcome cash flow problems.
-You are not tied into an agreement which requires repayment over several years.
- An expensive form of borrowing with high interest charges and costs especially if the facility is no arranged in advance.
Give an advantage and a disadvantage of Mortgage.
-Amount can be repaid over many years eg 25.
-Repayments may be high due to high interest rates.
-If repayments are not made then the property may be repossessed.
Give a advantage and a disadvantage of a Government Grant.
-The money does not have to be repaid.
-A large amount of money can be received at one time.
-There may be certain restrictions as to what the money can be used for.
Give an advantage and a disadvantage of re-invested profits.
-There are no extra costs eg interest to be paid.
-There may be insufficient money to fund the business.
Give an advantage and a disadvantage of Hire Purchase.
-Allows businesses to buy assets with only a small initial payment.
-Once full payments have been made the asset is owned.
Give an advantage and a disadvantage of Leasing.
-Can obtain the asset without a large financial outlay.
-Repairs are carried out by the leasing company free of charge.
-Upgrades can be obtained when the lease runs out.
-You never own the asset.
Give an advantage and a disadvantage of Trade Credit.
-Can buy goods and sell them on before payment is required.
-Provided payment is made within the agreed number of months then no interest is charged.
-May lose out on prompt discounts.
-May gain a reputation as a slow payer.
Give an advantage and a disadvantage of factoring.
-Allows the business to receive cash immediately.
-Removes the inconvenience of chasing up late payments.
-The service of the factor has to be paid for. The full values of the debts are never received.
Give an advantage and a disadvantage of issue shares.
-Large amounts of money raised quickly.
-Dividends have to be paid to shareholders which reduces the retained profits of the business.
State 4 reasons how poor cash flow can be caused.
-Spending too much on stock that has not sold.
-Giving customers too long to pay their debts.
-Not receiving enough money from sales.
-Not receiving enough time to pay bills from suppliers.