1.3.4 Sources Of Finance Flashcards
What are the advantages of trade credit?
The business will always have raw materials in stock, so they can continue manufacturing the product. The bank doesn’t need to approve (spontaneous finance) They won’t have to raise finance.
What are the disadvantages of trade credit?
Some suppliers charge higher for a trade credit deal, and businesses may miss out on discounts.
What are the advantages of an overdraft?
An overdraft is easy to obtain (doesn’t require security), it is a quick source of short-term finance. Very flexible
What are the disadvantages of an overdraft?
High interest rates compared to loans, and you have to pay it back as soon as you recieve cash in your account.
What are the advantages of a bank loan?
Bank loans are usually for large amounts and can be paid back over a long period of time (e.g. 2 years) They are paid in monthly installments to improve cash flow.
What are the disadvantages of a bank loan?
They are hard to obtain, because it depends on the bank and how successful they think it will be and they have to do credit checks. They have high interest rates, and may demand security from assets.
What are the advantages of crowdfunding and give an example?
Crowdfunding occurs when people donate a small amount of money towards your business. (e.g. Kickstarter) Useful for small businesses as an advert.
What are the disadvantages of crowdfunding?
Alerts competitors about your product and your need for funds. Crowdfunding may not be successful, so it could be a waste of time.
What are the advantages of retained profit?
No interest rates, and you don’t need to pay anything back. Easy to access and quick form of finance.
What are the disadvantages of retained profit?
It depends on the size of the business, and can only be used for small purchases. Owner can’t spend it on himself.
What are the advantages of venture capital?
Good for risky start-up businesses. Investors can give you advice along with large sums of money to help you run the business.
What are the disadvantages of venture capital?
Owners may lose control over the business, and investors expect some share of profits in return.
What are the advantages of share capital?
Easy to access and quick source of finance. Business doesn’t need to pay interest.
What are the disadvantages of share capital?
Shareholders have a vote on changes in the business, so they may not like it.
