Sources of Finance

Question 1

What is OWNERS CAPITAL? (internal)

Answer 1

owners personal wealth or saving/ assest

Question 2

What is RETAINED/ reinvested PROFIT? (internal)

Answer 2

money left over after a firm has paid all its costs

Question 3

What is SALE OF ASSETS? (internal)

Answer 3

sell an item of value/ asset which is no longer needed

Question 4

What is WORKING CAPITAL? (internal)

Answer 4

day2day funding turn stock and inventory to money; compromises current assets of the business.

Question 5

Advantages of OWNERS CAPITAL

Answer 5

+ no interest
+ personal incentive

Question 6

Disadvantages of OWNERS CAPITAL

Answer 6

• limited
• risk

Question 7

Advantages of RETAINED PROFIT

Answer 7

+ no interest
+ big source of finance

Question 8

Disadvantages of RETAINED PROFIT

Answer 8

• new firm wont have much
• shareholders get dividens

Question 9

Advantages of SALE OF ASSETS

Answer 9

+ cash flow
+ no interest

Question 10

Disadvantages of SALE OF ASSETS

Answer 10

• lose asset/ control
• long run costly

Question 11

Advantages of WORKING CAPITAL

Answer 11

+fund day2day activity

Question 12

Disadvanatages of WORKING CAPITAL

Answer 12

• small firms have less of it

Question 13

What is LEASING AND HIRE PURCHASE? (external)

Answer 13

need an asset to generate some money so hire best equipment

Question 14

What is TRADE CREDIT? (external)

Answer 14

business2business transactions get goods and services on account with typically 30 days to pay but difficult for small firms where there is a lack of trade history

Question 15

What is DEBT FACTORING?(external)

Answer 15

Debt is sold to a third party offered by a bank/ specialist financial instituiton. Debt is money owed to a firm/ financial asset

Question 16

What is COMMERICAL MORTAGE? (external)

Answer 16

long term loan to buy a property- 25 years to pay back interest on top

Question 17

What is GOVERNMENT ASSISTANCE? (external)

Answer 17

Only like to receive funding if it has a positive social outcome with jobs/ wealth/ prosperity

Question 18

Advantages of GOVERNMENT ASSISTANCE

Answer 18

+ free funding
+ low interest

Question 19

Disadvantages of GOVERNMENT ASSISTANCE

Answer 19

• bureaucracy form filling long and tedious

Question 20

Advantages of COMMERICAL MORTAGE

Answer 20

+know what to pay
+ inflation wipes out debt
+ trust/ reputation

Question 21

Disadvantages of COMMERICAL MORTAGE

Answer 21

• long term commitment
• interest on top
• maintainance bills

Question 22

Advantages of LEASING AND HIRE PURCHASE

Answer 22

+ high quality asset
+ saves cash outflow

Question 23

Disadvantages of LEASING AND HIRE PURCHASE

Answer 23

• long term expensive
• may never own asset

Question 24

Advantages of TRADE CREDIT

Answer 24

+ works well with trust
+ saves time

Question 25

Disadvantages of TRADE CREDIT

Answer 25

- cash flow problems - conflict between others

Question 26

Advantages of DEBT FACTORING

Answer 26

+ immediate finance + some debt is returned

Question 27

Disadvantages of DEBT FACTORING

Answer 27

- pay a % of debt never returns

Question 28

What is OVERDRAFTS?

Answer 28

short term finance from bank. On business account or current account when needed

Question 29

Advantages of OVERDRAFTS

Answer 29

+ flexible + emergency

Question 30

Disadvantages of OVERDRAFTS

Answer 30

- high interest rate - bank has all the power

Question 31

What is a BANK LOAN?

Answer 31

Agreed amount negotiated with bank. Credit worthy have some sort of track record

Question 32

Advantages of BANK LOANS

Answer 32

+ fixed interest rates + know obligation

Question 33

Disadvantages of BANK LOANS

Answer 33

- interest - bank has all power

Question 34

Advantages of SHARE CAPITAL

Answer 34

+ expertise + shareholders

Question 35

Disadvantages of SHARE CAPITAL

Answer 35

- lose control - disagreements in partnerships lead to conflicts

Question 36

Advantages of VENTURE CAPITALISTS

Answer 36

+ receive good advice/ expertise + right amount of funding is received

Question 37

Disadvantages of VENTURE CAPITALISTS

Answer 37

- lose control - disagreements in partnerships lead to conflicts

Question 38

Advantages of SALE/ LEASEBACK

Answer 38

+ cash in quickly

Question 39

Disadvantages of SALE/ LEASEBACK

Answer 39

- assets/ control gone - long run pay more

Question 40

What is SHARE CAPITAL?

Answer 40

As an investor buying into a firm. Might become a partner or shareholder meaning you have some control/ equity in the business

Question 41

What is VENTURE CAPITALISTS?

Answer 41

Money invested by a proffessional investor usually invest in a growing form looking for a good return/ equity

Question 42

What is SALE AND LEASEBACK?

Answer 42

Firm needs money ASAP - cashflow crisis so sell an asset and later hire and lease back