raising finance

Question 1

what is finance used for

Answer 1

day to day spending

fixed assets

eages

Question 2

what is a source of a finance

Answer 2

provider of finance

Question 3

what is a method of finance

Answer 3

way provider gives finance

Question 4

short term finance

Answer 4

finance using repaid within 1 year

Question 5

long term finance

Answer 5

needed for long term investments

repaid within 3 years or more

Question 6

internal sources of finance definition

Answer 6

come from within the business

Question 7

examples of internal sources of finance

Answer 7

retained profit
owners capital
selling assets
study tip: ROS

Question 8

retained profit

Answer 8

where profit is retained and built up for later investment

Question 9

what businesses will not be able to use retained profit

Answer 9

newer businesses as dont yet have enough profit to save for later investments

Question 10

adv of retained profit

Answer 10

business doesnt have to pay INTEREST

Question 11

dis of retained profit

Answer 11

shareholders may want to receive profit as dividends

may cause business to miss out on investment opportunities

Question 12

owners capital

Answer 12

money the owner invests into the business from their personal savings

sole traders and partnerships are likely to use when starting up

Question 13

adv of owners capital

Answer 13

easy to access

doesn’t need paying back

Question 14

dis of owners capital

Answer 14

amount of finance raised is limited

depends on personal wealth of owner

Question 15

selling assets

Answer 15

sell some of their assets e.g old machinery to generate capital

Question 16

what types of businesses is selling assets not suitable for

Answer 16

newer businesses as dont have any spare assets

unlikely to have assets they dont use

Question 17

adv of selling assets

Answer 17

dont have to pay interst on money raised by selling assets

makes it cheap source of finance

Question 18

dis of selling assets

Answer 18

means business no longer owns the asset

takes a long time to sell asset and get the cash

Question 19

external sources of finance

Answer 19

comes from outside the business

Question 20

examples of external sources of finance

Answer 20

crowd funding
other businesses
peer to peer lending
freinds and family
a
business angels
banks

study tip: FABB COP

Question 21

friends and family

Answer 21

owners of small businesses may ask help financially from freinds and family

Question 22

adv of using freinds and family

Answer 22

little or no interest

may agree to a flexible repayment

Question 23

dis of freinds and family

Answer 23

may be limited depeding on how much person willing to give/ may be little amout

could put strain on relationship if they need money back quickly

Question 24

banks

Answer 24

offer methods of finance e.g overdrafts, loans etc

Question 25

adv of banks

Answer 25

terms and conditions of their financial products are clear recognised financial institutions

Question 26

dis of banks

Answer 26

strict lending criteria-can be hard for start ups and other risky businesses to be approved for finance

Question 27

business angels

Answer 27

wealthy individuals who invest into a business where they see potential usually offer guidance and advice too

Question 28

adv of business angels

Answer 28

may have useful contacts and lots of business knowledge

Question 29

dis of business angels

Answer 29

difficult and time consuming to find a business angel willing to invest share of business has to be given up, may mean business angel gains some control of business and its decisions

Question 30

crowd funding

Answer 30

raising money via the internet each person contributes little amount but collectively alot can be raised business puts details of new idea ut needs money for onto a website details are made public so anyone can see and contribute with the funding rewards are often donated such as early access to product ot discounted price upon release

Question 31

adv of crowd funding

Answer 31

raises awareness of a product or brand with people using the website increasing sales

Question 32

dis of crowd funding

Answer 32

risk of ideas being copied once idea made public if business idea fails, lots of people maybe aware, create negative reputation of the business

Question 33

other businesses

Answer 33

business with large retained profit may want to invest in another business rather then saving profit may want to do this if bank interests are low

Question 34

peer to peer lending

Answer 34

operate online allow individuals to lend money to other indiviaudls or businesses lenders say how much they are willing to lend and indicate what sort of interest rate they want borrowers say how much money they want to borrow and give some info about why they need the money and how long they want loan for l# lending company assesses and matches borrowers with appropriate lenders have lower interst rate then bank loan and attractive option if bank refuses to provide loan

Question 35

short term methods of finance

Answer 35

grants leasing overdrafts trade credit study tip: glot

Question 36

grants

Answer 36

fixed sum of money given to business by Government usually to fund specific projects governemnt=grant two GS

Question 37

adv of grants

Answer 37

DO NOT NEED TO BE PAID BACK no interst need to be paid and no share of the business has to be given up

Question 38

leasing

Answer 38

paying monthly sums of money in return for the use of an asset after lease period, asset if returned back to leasing firm

Question 39

dis of grants

Answer 39

application process can be time consuming and theres risk of not succesfully getting grant doesnt get money till end of project so has to find another soyrce of finance in meantime

Question 40

adv of leasing

Answer 40

no large up front sum of money to buy asset asset leased often up to date so less liekly to become faulty usually maintenace and costs are included in lease

Question 41

dis of leasing

Answer 41

may become more expensive then just buying asset in first place more costly in long run then buying asset outright

Question 42

overdrafts

Answer 42

banks let business have negative amount of money in bank account

Question 43

adv of overdrafts

Answer 43

easy to arrange flexible business can borrow as much or little as they need only pay interest on amount of overdraft they actually use

Question 44

dis of overdrafts

Answer 44

charge high rates of interest on them unsuitable for using in long term

Question 45

trade credit

Answer 45

when business buys a good or service and doesnt have to pay it back straight away business pays back within an agreed time limit

Question 46

adv of trade credit

Answer 46

helps business with cash flow

Question 47

dis of trade credit

Answer 47

miss out on discounts paying upfront can charge fee if not payed back within the time

Question 48

long term methods of finance examples

Answer 48

loans share capital venture capital

Question 49

loans

Answer 49

where fixed amount of money is borrowed and payed back within a fixed period of time WITH INTEREST loans can be such as banks, frinds and family, peer to peer lenders

Question 50

adv of loans

Answer 50

good for newer businesses dont have to pay back loan or interest wont own any of the bsuiness so dont have to give up shares of the profits

Question 51

dis of loans

Answer 51

not good for day to day running costs of business difficult to arrange as loan provider will only lend money to business if think they are going to get it back

Question 52

page 57-61 still need to be completed