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UNIT 3 BUSINESS > Sources of Finance > Flashcards

Sources of Finance Flashcards

1
Q

Define internal finance

A

Money that Comes from within a business

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2
Q

Define retained profits

A

Profits kept within the business to fund future expenditure.

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3
Q

Benefits of internal finance

A

No interest charges
Available immediately
Avoids debt
No loss of ownership

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4
Q

Limitations of internal finance

A

Limited amount.
Reduces divident to shareholders
Once used ut can’t be used for anything else

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5
Q

Define net current assets

A

Shows how much capital the business has for day to day expenditure

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6
Q

Benefits of net current assets

A

Encourages the business to manage cash flow

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7
Q

Limitations of net current assets

A

Pressures customers due to shorter credit terms.
May upset suppliers if longer credit is applied for.
Lower stock may make an impact on how the business meets demand.

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8
Q

Define sales of assets

A

When companies let go of some assets in exchange for needed cash or other forms of compensation.

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9
Q

Benefits of sales of assets

A

No interest charges.
Reduces capital tied up in assets so it can be used else where.
Disposes id unused assets.

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10
Q

Limitations of sale of assets

A

Can increase cost of asset if needs to be eventually replaced.
Often difficult to get an amount close to the value of asset.

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11
Q

Define external finance

A

Money that comes from outside the business

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12
Q

Examples of external finance

A 
Owners capital
Loans 
Leasing
Trade credit 
Hire purchase
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13
Q

Define owners capital

A

The money provided to the business from the owners own pocket

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14
Q

Benefits of owners capital

A

No need to pay/repay interest.

High level of commitment from the owner

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15
Q

Limitations of owners capital

A

Limited funds
Personal financial issues
May cause problems if there is more then one owner.

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16
Q

Define loans

A

Money which is provided by a bank or loan provider.

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17
Q

Benefits of loans

A

Regular.
Scheduled payments to make it easier for business to budget.
Terms can be negotiated with provider.

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18
Q

Limitations of a business

A

Interest is changed on repayments.

Loans are secured on a asset which can be taken away if loans are not payed.

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19
Q

Define crowd funding

A

Where project is funded by many strangers using websites etc

20
Q

Benefits of crowd funding

A

Access to large amount of investors.

Directly appeal to target markets.

21
Q

Limitations of crowd funding

A

Partial loss of ownership

Not guaranteed to attract enough investment for proposal to be successful

22
Q

Define mortgages

A

A large loan to purchase and expensive asset

23
Q

Benefits of mortgages

A

Larges sums of capital can be raised and paid back over a long period of time.

24
Q

Limitations of mortgages

A

Asset can be repossessed if payments are not made.

Long term financial commitment

25
Q

Define venture capital

A

A venture capitalist invests in different businesses to make large returns.

26
Q

Benefits of venture capital

A

Capital provided by a business professional who in knowledgeable.
Often take riskier investments.

27
Q

Limitations of venture capital

A

Partial loss of ownership

Potential conflict with owner and VC

28
Q

Define debt factoring

A

Where a business sells its debts to another company for quick access for money.

29
Q

Benefits of debt factoring

A

Speeds up cash flow

The factor business takes on the risk of non payment.

30
Q

Limitations of debt factoring

A

Only receive a portion of money owed.

Can give out a negative impression

31
Q

Definition of hire purchase

A

Where am asset is paid over a set period of time. The asset doesn’t belong to the business until it’s fully paid.

32
Q

Benefits of hire purchase

A

Spreads the costs over time.

Helps maintain cash flow

33
Q

Limitations of hire purchase

A

Only available on assets such as vehicles.

Will cost the business more than buying it outright.

34
Q

Define leasing

A

This is where a business pays to use an asset that will not belong to them

35
Q

Benefits of leasing

A

Repair and maintenance responsibilities sits with the supplier
Spreads the costs out

36
Q

Limitations of leasing

A

More then expensive than buying an asset outright

Assets won’t belong to the business.

37
Q

Define trade credit

A

Where a business does not have to pay a supplier for goods immediately.

38
Q

Benefits of trade credit

A

Delays the payments for supplies which increases cash flow

39
Q

Limitations of trade credit

A

Only suitable for short term solution

Suppliers may offer discounts for immediate payment

40
Q

Definition of grants

A

Funds that do not need to be payed back

41
Q

Peer to peer lending

A

Where a business borrows for another business eland pays interest

42
Q

Benefits of peer to peer lending

A

Terms can be negotiated

43
Q

Limitations of peer to peer lending

A

Limited amount over a short period

44
Q

Define invoice discounting

A

Where a supplier will offer a discounts on orders often out of loyalty

45
Q

Benefits of invoice discounting

A

Reduces the cost of the business

Strengthens relationship with supplier

46
Q

Limitations of invoice discounting

A

Often only available when payment is upfront, which can create cash flow issues.

UNIT 3 BUSINESS (7 decks)

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