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Flashcards in Finance Sources Deck (37):
1

Give at least two examples of internal sources of finance for businesses.

At least two from:
- Retained profit
- Sale of assets
- Owners capital

2

Why may retained profit be a good source of internal finance?

- As it is a free source of finance that does not incur interest.

3

Why may retained profit be a bad source of internal finance?

- Shareholders may wish to receive their money back in the form of a dividend.

4

Why may sales of assets be a good source of internal finance?

- It frees up monetary value to be used in other areas of the business.

5

Why might sales of assets be a bad source of internal finance?

- It causes the business to loose the benefit of having the assets i.e. no longer owning a delivery vehicle.

6

Is retained profit a long or short term method of internal finance?

- Long term

7

Is sales of assets a short or long term method of internal finance?

- Long term

8

Why might owners capital be a good source of internal finance?

- It is a free source of finance that does not incur interest.

9

Why might owners capital be a bad source of internal finance?

- Owners could loose their personal investment into the business.

10

Is owners capital a long or short term method of internal finance?

- Long term

11

Give at least three examples of external sources of finance for businesses.

At least three from:
- Overdrafts
- Debt factoring
- Bank loan
- Mortgage
- Venture capital
- Share capital
- Crowdfunding

12

What is an overdraft?

Where the bank allows a firm to take out more money than is in its bank account.

13

Is an overdraft a long or short term method of external finance?

- Short term

14

Why might overdrafts be a good source of external finance for businesses?

- It is a flexible way to fund working capital and acts as a buffer for day to day expenses.

15

What might overdrafts be a bad source of external finance for business?

- The bank pay ask for repayment at any time and interest rates are high.

16

What is debt factoring?

Where a firm sells its debt to a third party factor.

17

Is debt factoring a long or short term source of external finance?

- Short term

18

Why might debt factoring be a good source of external finance for a business?

- It allows businesses to receive cash immediately.

19

Why might debt factoring be a bad source of finance for a business?

- Customers could be aware if debts are factored and loose faith in the company.

20

Is a bank loan a long or short term source of finance?

Long term

21

Why may bank loans be a good source of external finance for a business?

- the loan can be negotiated to meet the requirements of the business.
- the loan is paid back over a fixed amount of term
- the bank or loan provider cannot ask for the money repayments before they are due.

22

Why may bank loans be a bad source of external finance for businesses?

- The business has to pay interest on the loan and may have to offer collateral in order to secure it.

23

What is a mortgage?

- A special type of loan which allows for the purchase of property.

24

Why might a mortgage be a good source of external finance for businesses?

Because it is ideal for long term investments.

25

Why might a mortgage be a bad source of external finance for a business?

- Because large amounts of interest can be charged over its lifetime.

26

What is venture capital?

- Capital which is invested at an early stage by an individual or company in return for equity in the business.

27

Is venture capital a long or short term source of external finance?

Long term

28

Why might venture capital be a good external source of finance for businesses?

- It can bring an added level of expertise to the business.

29

Why might venture capital be a bad external source of finance for businesses?

- The business owner may not want input from elsewhere into the running of the business.

30

What is share capital?

An owners investment into a limited company in order to become a shareholder.

31

Is share capital a long or short term source of finance?

Long term

32

Why might share capital be a good source of external finance for businesses?

- It allows the business to have access to very large amounts of capital without having to pay interest.

33

Why might share capital be a bad source of external finance for businesses?

Because it is only available to private limited companies (LTD) and public limited companies (PLC)

34

What is crowdfunding?

Raising money from a large number of people via crowdfunding websites.

35

Is crowdfunding a long or short time source of finance for businesses?

- Long term

36

Why might crowdfunding be a good source of external finance for businesses?

- It is cheap and easy to set up.

37

Why might crowdfunding be a bad source of external finance for businesses?

- It is not suitable for raising large amounts of money.