Sources of Finance

Question 1

What are the two types of Sources of Finance

Answer 1

Internal

External

Question 2

Name the Internal Sources of Finance

Answer 2

Owner’s Investment

Retained profits

Sale of Inventory

Sale of Sixed Assets

Debt Collection

Question 3

Name the External Sources of Finance

Answer 3

Bank Loan/Overdraft

Additional Partners

Share issue

Leasing

Hire Purchase

Mortgage

Trade Credit

Government Grants

Question 4

Advantage of Owner’s Investment

Answer 4

Doesn’t have to be repaid
No interest is payable

Question 5

Disadvantage of Owner’s Investment

Answer 5

There is a limit to the amount an owner can invest

Question 6

Advantage of Retained Profits

Answer 6

Doesn’t have to be repaid
No interest is payable

Question 7

Disadvantage of Retained Profits

Answer 7

New Businesses may not have retained profits

Question 8

Advantage of Sale of Inventory

Answer 8

Quick way of raising finance

Question 9

Disadvantages of Sale of Inventory

Answer 9

Business will have to take a reduced price from what they originally bought to se the stock

Question 10

Advantage of Sale of Fixed Assets

Answer 10

Good way to raise finance from an asset that is no longer needed

Question 11

Disadvantage of Sale of Fixed Assets

Answer 11

Some businesses may not have unused assets

can be a slow method

Question 12

Advantage of Debt Collection

Answer 12

No Additional Cost

Question 13

Disadvantage of Debt Collection

Answer 13

There is a risk that debt owed can go bad and not be repaid

Question 14

Advantage of Bank Loadn

Answer 14

Payments can be spread over a long period of time , good for budgeting

Question 15

Disadvantage of Bank Loan

Answer 15

Can be expensive overtime due to interest rates

Question 16

Advantage of Bank OVedraft

Answer 16

Can be used in short term

usually cheaper that a bank loan

Question 17

Disadvantage of Bank Overdraft

Answer 17

Interest is payable

Question 18

Advantage of Additional PArtners

Answer 18

Doesn’t have to be repaid

no interest is payable

Question 19

Disadvantage of Additional Partners

Answer 19

Profits will need to be split

Question 20

Advantage of Share Issue

Answer 20

Doesn’t have to be repaid

no interest is payable

Question 21

Disadvantage of Share Issue

Answer 21

Ownership of the company could change hands

Question 22

Advantage of Leasing

Answer 22

business can use up to date equipment immediately
Payments can be spread over a long period of time , good for budgeting

Question 23

Disadvantage of Leasing

Answer 23

Can be expensive

Asset doesn’t actually belong the business, it is owned by finance company

Question 24

Advantage of Hire Purchase

Answer 24

business can use up to date equipment immediately

Once business makes all the payments, it owns the assets

Question 25

Disadvantage of Hire Purchase

Answer 25

Expensive method compared to buying cash

Question 26

Advantage of Mortgage

Answer 26

Payments can be spread over a long period of time , good for budgeting

Question 27

Disadvantage of Mortgage

Answer 27

If the business doesn't keep up with the repayments, the property could be repossessed

Question 28

Advantage of Trade Credit

Answer 28

Business can sell the good first and pay for them later No interest is charged if paid withing agreed time

Question 29

Disadvantage of Trade Credit

Answer 29

Discount given for cash payment would be lost

Question 30

Advantage of Government Grant

Answer 30

Doesn't have to be repaid

Question 31

Disadvantage of Government Grant

Answer 31

Not all businesses are eligible