KK7 Sources of Finance

Question 1

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What is equity?

Answer 1

Refers to the funds contributed by the business owners to start and expand the business

Question 2

What is Debt?

Answer 2

Is the funds provided by sources outside the business, which must be paid back over time, with interest. E.g. Bank loan

Question 3

Types of Equity Finance

Answer 3

1. Self Funding
2. Family/Friends
3. Private investors
4. Shares
5. Crowdfunding

Question 4

Types of Debt Finance

Answer 4

1. Bank Overdraft
2. Trade Credit
3. Loan Mortgage
4. Leasing

Question 5

Factors to consider when deciding a source of finance

Answer 5

Terms of Finance -match loan life to asset life
Business Structure – Large businesses can access equity (shareholders) easier than small
Overall Cost – How much will the equity or debt cost the business owner?
Flexibility – If debt paid off early or business cannot pay due to unforeseen issues i.e. COVID 19
Level of Control – If owner takes in other partners/shareholders they may loose control of business.