1.3c Sources Of Business Finance

Question 1

What is short-term sources of finance used for ?

Answer 1

• helps a business maintain a positive cash flow
• used for emergency
• used as part of operating model if they know customer will pay their invoices

Question 2

What are two examples of short term finance ?

Answer 2

Trade credit and overdraft

Question 3

What is trade credit ?

Answer 3

Credit extended by one trader to another when the goods and services are bought on credit

Question 4

What are examples on long-term finance ?

Answer 4

Personal savings 
Venture capital 
Share capital 
Loans 
Retained profit 
Crowdfunding

Question 5

What is venture capital ?

Answer 5

Money lent by a large business or successful entrepreneur to a small business

Question 6

What is share capital ?

Answer 6

Money invested in a business by shareholders ( part - own business )

Disadvantage

• entrepreneur loses entire control of a business
• has to consider shareholders opinions on important decisions

Question 7

Disadvantage of loans ?

Answer 7

• interest charges
• assets at risk for business security
• may ask for a guarantor

Question 8

What is retained profit ?

Answer 8

Money a business keeps rather than paying out to shareholders , can be used for re-investment and developments of products