2 - External Sources Of Finance

Question 1

How are “external” sources of finance raised?

Answer 1

From a third-party

Question 2

What can external sources of finance fund for a business?

Answer 2

Long-term investments

Question 3

Why might external sources of finance be more costly?

Answer 3

Interest may be charged from loans

Question 4

When isn’t interest charged from an external source?

Answer 4

If the business uses retained savings

Question 5

What does a business sell when selling “share capital”? Who to?

Answer 5

Shares of the business

People or businesses

Question 6

Why do businesses give away a percentage of their share capital?

Answer 6

For finance

Question 7

What TV show involves share capital?

Answer 7

Dragon’s Den, BBC

Question 8

Who do public limited companies create and sell their shares to?

Answer 8

Investors on the stock market

Question 9

Who might private limited companies share their shares to?

Answer 9

Private equity companies

Question 10

What are “bank loans and mortgages” important for?

Answer 10

Businesses

Question 11

Who does a business borrow money from? What is paid along with the borrowed money?

Answer 11

A bank

Interest

Question 12

Why might it be harder for newer businesses to get bank loans?

Answer 12

Banks see them as a riskier investment

Question 13

What is meant by “trade credit”?

Answer 13

Where businesses pay their suppliers at a later date

Question 14

What does trade credit involve?

Answer 14

Buying something and paying it at a later date

Question 15

What type of businesses often use trade credit?

Answer 15

Supermarkets

Question 16

How might supermarkets use trade credit?

Answer 16

They have food delivered, but pay the supplier later

Question 17

What is meant by a “hire purchase”?

Answer 17

When a business buys something and pays for it in installments

Question 18

What is an example of a famous hire purchase?

Answer 18

When PSG bought Kylian Mbappe from Monaco

Question 19

What does a hire purchase allow a business to do? What product might be hired?

Answer 19

Use expensive products without paying for them directly

Machinery

Question 20

Why might start-up businesses use “loans from family and friends”?

Answer 20

The owner might not have enough savings for the investment

Question 21

Why might an owner give up equity to their donators?

Answer 21

So they don’t have to pay interest on a loan

Question 22

What is meant by a “government grant”?

Answer 22

Where a government give money to a business for research purposes

Question 23

What is an example of a set of government grants given out to countries in the EU?

Answer 23

Horizon 2020

Question 24

What is meant by “debt factoring”?

Answer 24

A business selling their debts to a third-party

Question 25

Who immediately gains cash from debt factoring?

Answer 25

The business selling the debt

Question 26

What will the debt from debt factoring be sold for in terms of its value?

Answer 26

It will be sold for less than its original value

Question 27

What will the third-party who collect the debt arrange and organise? What will they ensure?

Answer 27

The invoices | The debt money is collected

Question 28

What will the third-party from debt factoring retain to cover the cost of the debt collection service?

Answer 28

A fee

Question 29

What is meant by "venture capital"?

Answer 29

Where an investor provides a business with a loan or share capital

Question 30

What is meant to be ensured from venture capitalism?

Answer 30

Business growth

Question 31

What might venture capitalists ask for when investing?

Answer 31

Some control of the business

Question 32

How might venture capitalists gain some control of the business they are investing in?

Answer 32

Shares

Question 33

What might venture capitalists play a role in within the business?

Answer 33

As non-executive directors

Question 34

What is meant by an "overdraft"?

Answer 34

Where a business can borrow a limited amount of money from a bank

Question 35

Why are overdrafts flexible?

Answer 35

Businesses can borrow how much they like as long as they stay within the agreed limit

Question 36

How do businesses possibly pay for flexible overdrafts?

Answer 36

Higher interest rates

Question 37

What is meant by a "business angel"?

Answer 37

An affluent individual who provides funding in exchange for ownership

Question 38

What do businesses obtain through business angels?

Answer 38

Finance

Question 39

What is transferred through business angels and owners?

Answer 39

Ownership

Question 40

What does transferred ownership to business angels mean for owners?

Answer 40

Owners have less control over their business

Question 41

What do businesses not have to pay from business angel funding?

Answer 41

Interest rates

Question 42

What is meant by "crowdfunding"?

Answer 42

Raising finance by allowing large numbers of people to donate

Question 43

What are two websites businesses can obtain funding through crowdfunding?

Answer 43

Seedrs | Kickstarter

Question 44

What do business owners retain through crowdfunding?

Answer 44

Ownership

Question 45

What does crowdfunding mean for an owner's existing ownership?

Answer 45

No shares of the business are sold

Question 46

What is an issue with crowdfunding?

Answer 46

It can take a long time

Question 47

What is crowdfunding unsuitable for?

Answer 47

Businesses who need quick funds

Question 48

What is GoFundMe?

Answer 48

A crowdfunding platform that allows businesses to share information on a product

Question 49

What does GoFundMe rely on?

Answer 49

People deciding to donate to a business

Question 50

Why do people make donations in crowdfunding?

Answer 50

In return for a free trial or pre-release access of a product