Unit 3.2 External Sources of Finance

Question 1

What is Share Capital

Answer 1

Long terms source of finance used by limited companies to raise funds by selling company shares

Question 2

What is an IPO

Answer 2

Initial public offer: it is when a company sells shares to the public for the first time on the stock market.
eg: Alibaba, Facebook

Question 3

What are adv and disadv of share capital

Answer 3

ADV: permanent capital/ no repayment
- no interest charge
- large and fast funding

DISADV: sharing dividends with shareholders
- less owner control
- high cost / expensive

Question 4

What is Loan Capital, its adv and disadv

Answer 4

borrowing money from financial lenders eg banks (long term)

adv: regular payments + lower interest
disadv: intreats must be paid + unlimited liability

Question 5

What are Overdrafts, its adv and disadv

Answer 5

short term source of finance allowing businesses to withdraw more money than what is in their bank account

adv: easy to access + useful for emergency payments
disadv: high interest + bank can demand repayment on short notice

Question 6

What are trade credits

Answer 6

Buy now, Pay later within 60-90 days
eg: tabby, tamara

Question 7

What is Crowdfunding?

Answer 7

raising small amounts of money from large groups of people usually via online platforms. eg :Go fund me

adv: raise large funds from many people + no control lost
disadv: risk of idea theft + prone to scamming

Question 8

What is leasing

Answer 8

when a business pays to use non current assets from a lessor for a period of time without owning it.

Question 9

What is Micro-financing?

Answer 9

for profit social enterprises that provides small loans or financial services to people without jobs or low incomes, usually ind developing countries

adv: helps people get out from poverty + encourages community developing eg: healthcare and education

disadv: high interest- hard to repay + can be seen as unethical from the poor

Question 10

What are Business Angels

Answer 10

they are wealthy, private individuals who invest their own money into business ventures with high growth potential, in return for equity or shares in future profits

adv: provide crucial funding for start up business + more flexible than banks

disadv: high risk for angel
no guarantee for return on investment