sources of finance

Question 1

what is retained profit

Answer 1

The portion of a company’s earnings that is kept for reinvestment rather than being paid out as dividends to shareholders.

Question 2

what is overdrafts

Answer 2

An agreement with a bank that allows you to spend more money than you have in your account, up to a certain limit.

Question 3

what is venture capital

Answer 3

Funds provided by investors to start-up companies and small businesses with high growth potential in exchange for equity ownership.

Question 4

what is debt factoring

Answer 4

a financial arrangement where a business sells its unpaid invoices to another company for immediate cash.

Question 5

what is loans

Answer 5

Borrowed money that must be repaid over time, usually with interest added.

Question 6

what is crowd funding

Answer 6

Raising small amounts of money from many people, typically via the internet, to support a project or business idea.

Question 7

what is share capital

Answer 7

The total amount of money raised by a company through selling shares to investors.

Question 8

what is the only internal source of finance

Answer 8

retained profit

Question 10

retained profits advantages

Answer 10

• cheap
• very flexible
• do not dilute ownership

Question 11

retained profits disadvantages

Answer 11

• danger of hoarding cash
• shareholders perfer dividends
• high profits and cash flow suggest they can afford the debt

Question 12

overdraft advantages

Answer 12

• relatively easy to arrange
• flexible
• interesting only on what borrowed
• not secured on assets

Question 13

overdraft disadvantages

Answer 13

• can be withdrawn at short notice
• interest charge varies
• higher interest than bank loan

Question 14

venture capital advantages

Answer 14

• can raise a substantial amount
• special investor support
• better discipline to business management and strategy

Question 15

venture capital disadvantages

Answer 15

• requires a high rate of return
• investment supported by high level of bank debt
• not long term investment
• loss of control majority share

Question 16

debt factoring advantages

Answer 16

• recievables turned into cash quickly
• focus on selling not collecting debt
• facility limitness suiting fast growing business
• no security requ

Question 17

debt factoring disadvantages

Answer 17

• high costs (3% typically)
• feel their relationship has changed

Question 18

bank loan advantages

Answer 18

• greater capacity of funding
• lower interest rate than overdraft
• appropriate for financing fixed assets

Question 19

bank loan disadvantages

Answer 19

• requires security
• interest paid on full amount
• harder to arrange

Question 20

crowd funding advantages

Answer 20

• access to capital
• marketing and exposure
• community engagement
• low risk

Question 21

crowd funding disadvantages

Answer 21

• high competition
• time consuming
• platform fees
• no guarantees
• public expose

Question 22

share capital advantages

Answer 22

• able to raise substantial amounts with good prospects
• broader base of shareholders
• equity rather than debt - lower risk

Question 23

share capital disadvantages

Answer 23

• costly and time consuming
• diluting shareholders
• equity has a cost capital higher than debt