2 - External Sources Of Finance Flashcards
How are “external” sources of finance raised?
From a third-party
What can external sources of finance fund for a business?
Long-term investments
Why might external sources of finance be more costly?
Interest may be charged from loans
When isn’t interest charged from an external source?
If the business uses retained savings
What does a business sell when selling “share capital”? Who to?
Shares of the business
People or businesses
Why do businesses give away a percentage of their share capital?
For finance
What TV show involves share capital?
Dragon’s Den, BBC
Who do public limited companies create and sell their shares to?
Investors on the stock market
Who might private limited companies share their shares to?
Private equity companies
What are “bank loans and mortgages” important for?
Businesses
Who does a business borrow money from? What is paid along with the borrowed money?
A bank
Interest
Why might it be harder for newer businesses to get bank loans?
Banks see them as a riskier investment
What is meant by “trade credit”?
Where businesses pay their suppliers at a later date
What does trade credit involve?
Buying something and paying it at a later date
What type of businesses often use trade credit?
Supermarkets
How might supermarkets use trade credit?
They have food delivered, but pay the supplier later
What is meant by a “hire purchase”?
When a business buys something and pays for it in installments
What is an example of a famous hire purchase?
When PSG bought Kylian Mbappe from Monaco
What does a hire purchase allow a business to do? What product might be hired?
Use expensive products without paying for them directly
Machinery
Why might start-up businesses use “loans from family and friends”?
The owner might not have enough savings for the investment
