small firms

Question 1

government grants

Answer 1

• often given to new or small firms
• dont have to be repaid
• money may have to be spent in a specific way

Question 2

trade credit

Answer 2

-businesses may give firms one or two months to pay for certain purchases
-useful for small firms bc they have time to earn the money to pay the debt
-if firm makes payment late they could end up with large fee

Question 3

overdrafts

Answer 3

-allows businesses to make payments on time even if they dont have enough cash
-higher interest rate, can be cancelled anytime by bank

Question 4

bank loans

Answer 4

• quick and easy to take out
• repaid with interest
  -interest rate usually lower than overdraft

Question 5

mortgages

Answer 5

-loans used to finance buying property
-property can be taken away if individual doesn’t pay mortgage

Question 6

interest payments

Answer 6

-relatively low compared to other sources of finance
-a sole trader could use their own house as collateral to borrow money - risk loss of home if the business fails

Question 7

hire purchases

Answer 7

-when a firm purchases something by first paying a deposit then paying instalments over periods of time while having use of the product
-allows firms to purchase useful things for their business that they otherwise couldn’t afford
-they have use of product over a longer period of time

Question 8

start-up capital

Answer 8

the money or assets needed to set up a business

Question 9

poor initial cashflow

Answer 9

they find it hard to cover their costs, so they need additional finance to cover this

Question 10

liquidity

Answer 10

how easily the business can access cash