FINANCE Long Term

Question 1

Bank Loan

Answer 1

Money borrowed from the bank that is repaid in regular instalments (over a fixed period of time) with interest.

Repaid in instalments which aids budgeting

Interest charges may affect cash flow in a negative way

Question 2

Hire Purchase

Answer 2

A business can buy an asset by paying an initial deposit and then monthly payments for a fixed period of time.
Repaid in instalments which aids budgeting
Ownership remains with the finance company until the last instalment is made.

Question 3

Sell and lease back

Answer 3

Sell an asset to gain funds and then lease it back. Lease - A contract that allows a business to rent an asset in return for regular, fixed payments usually on a monthly basis.
Gains funds for growth from sale of asset.

Through leasing, asset is replaced when obsolete

More expensive in the long term than buying the asset

Question 4

Grant

Answer 4

Money from the government to invest in specific projects that does not need to be paid back
Does not have to be paid back
Must meet specific conditions to secure grant

Question 5

Debentures

Answer 5

Loans borrowed from individuals through the stock market.
Control of the business retained
Have to pay interest on the amount borrowed

Question 6

Share Issue

Answer 6

Selling shares in the business. Plc sell on the stock market. Ltd sells shares privately.
Large sums of money can be raised by this method
Shareholders become owners of plc which may mean founders lose control

Question 7

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Answer 7

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Question 8

Crowdfunding

Answer 8

getting small amounts of finance from a large amount of people. This is usually done through social media or crowdfunding websites
Access to large amount of investors
A public request for investment risks your idea being copied by competitors