sources of finance Flashcards
stucying (22 cards)
advantages of bank overdraft
A customer can spend more than they have in their bank account up to a certain limit. They could, do stuff like pay wages from their bank account even though they have no money in it.
disadvantages of bank overdraft
It can be expensive in the long term because of high interest rates
advantages of trade credit
Businesses can buy goods from suppliers and then arrange to pay for them at a later date. This gives the business time to sell the products at a higher price, earn a profit and then pay their suppliers – hopefully before the bill or invoice arrives.
disadvantages of trade credit
Sometimes suppliers offer a cash discount for prompt payment. The firm will lose the cash discount if they take too long to pay. Also suppliers may be reluctant to sell more goods on credit if the business struggles to pay on time.
advantages of factoring
It can save the business time on pursuing the customer
disadvantages of factoring
The factirs take a fee,so the business doesnt get the full amount back
advantages of short-term bank loans
It can help pay for essential equipment and has a low interest rate
disadvantages of short-term bank loans
They are harder to get for newer or smaller businesses and have higher interest rates for them too
advantages of Hire purchase
It lets the business purchase things like machinery and equipment with only a small initial output of money.
disadvantages of Hire purchase
A business does’nt actually own the stuff until its fully paid.because of interest it is normally more expensive
advantages of leasing
The leasing system will replace the asset every few years and they also have to pay for any repairs.
disadvantages of leasing
A business never actually own the asset.
leasing costs can build up over a time,so it works out to be cheaper to have actually purchase the asset.
advantages of additional capital
The business does’nt need to pay back the money.
disadvantages of additional capital
The owner/s are risking more of their own money,If there is now a partner involved in the business, money has to be shared so each owner/s makes less money
advantages of mortgage
The business is given alot of time (25 years) to pay the money back
disadvantages of mortgage
Interest has to be paid on top of the initial amount borrowed.If the business does’nt pay it back or is really far behind with the payments, the lender can take the property/land.
advantages of long-term bank loans
The business is able to purchase assets and use it in the business to start making money.
disadvantages of long-term bank loans
The business now has debt and needs to make sure that all monthly payments are made on time.There is normally interest charged on top of the original loan amount and so it can be very expensive.
advantages of grants
The money normally does’nt need to be repaid.
disadvantages of grants
They’re normally one time payments and businesses are normally told what they have to spend it on.
advantages of retained profits
There is no interest and thebusiness doesnt gain any debt
