Sources Of Finance

Question 1

Crowdfunding

Answer 1

Asking a large number of people each for a small amount of money often via internet

Question 2

Retained profit

Answer 2

The proportion of a company’s profits that is not paid out as dividends to shareholders but instead retain by company for future use

Question 3

Debt factoring

Answer 3

A business can raise cash by selling their outstanding sales invoices (receivables) to a third party (factoring company) at a discount

Question 4

Overdrafts

Answer 4

An agreement with the bank where business can make payments from their bank account exceeding the available cash balance

Question 5

Share capital

Answer 5

The money invested in a company by the shareholders

Question 6

Loans

Answer 6

Borrowing a fixed amount for a fixed term with regular fixed repayments

Question 7

Venture capital

Answer 7

Investment made by specialist funds to finance to launch early development or expansion of a private company

Question 8

Is retained profit long or short term

Answer 8

Long term

Question 9

Is debt factoring long or short term

Answer 9

Short term

Question 10

Are overdrafts long or short term

Answer 10

Short term

Question 11

Is share capital long or short term

Answer 11

Long term

Question 12

Are loans long or short term

Answer 12

Long term

Question 13

Is venture capital long or short term

Answer 13

Long term

Question 14

Is crowdfunding long or short term

Answer 14

Long term

Question 15

Advantages of retained profits

Answer 15

Doesn’t have to be paid back
No intrest
No loss of control

Question 16

Advantages of debt factoring

Answer 16

Speeds up flow of cash into a business from debts
Factor company takes on risk of bad debt

Question 17

Advantages of overdrafts

Answer 17

Easy to arrange
Flexible

Question 18

Advantages of share capital

Answer 18

Able to raise substantial funds if the business has good prospects

Broader base of shareholder

Equity rather then debt = lower risk

Question 19

Advantages of loans

Answer 19

Allows you to get as much as you need

No loss of control

Question 20

Advantages of venture capital

Answer 20

Invest in risky business
Experience/ contacts
Discipline and management and strategy

Question 21

Advantages of crowdfunding

Answer 21

Raise money quickly
Only ask for smalls amount
No loss of control

Question 22

Disadvantage of retained profits

Answer 22

Opportunity cost
Amount of availability is limited

Question 23

Disadvantage of debt factoring

Answer 23

Pay a fee
Only receive a percentage of the amount owned, reduced profits
Alienate customers

Question 24

Disadvantage of overdrafts

Answer 24

High interest rates
Can be withdrawn within short notice

Question 25

Disadvantage of share capital

Answer 25

Loss of control Can be costly and time consuming Existing shareholders holdings may be diluted Lead to loss of control