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Edexcel A level Business > 2.1 Raising Finance > Flashcards

2.1 Raising Finance Flashcards

1
Q

What are the advantages of using family and friends as a source of external finance?

A
  • None / flexible low interest payments
  • May not want stake in business
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2
Q

What are the disadvantages of using family and friends as a source of external finance?

A
  • Limited funds
  • May want stake in business causing tensions in friendships
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3
Q

What are the advantages of using banks as a source of external finance?

A
  • Won’t interfere in business
  • Fixed sum available
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4
Q

What are the disadvantages of using banks as a source of external finance?

A
  • Formal application requiring a business plan, difficult if new business
  • Interest payments and collateral
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5
Q

What are the advantages of using peer-to-peer lending as a source of external finance?

A
  • Interest rates are lower than what the banks offer
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6
Q

What are the disadvantages of using peer-to-peer lending as a source of external finance?

A
  • Unsecured loans (lender might lose money if borrower defaults)
  • Limited funds
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7
Q

What are the advantages of using business angels as a source of external finance?

A
  • Knowledgeable and experienced
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8
Q

What are the disadvantages of using business angels as a source of external finance?

A
  • Difficult to find a suitable angel who has the same vision
  • Requires compelling business proposition
  • Wants a stake in the company
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9
Q

What are the advantages of using crowdfunding as a source of external finance?

A
  • Lots of potential investors from around the world
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10
Q

What are the disadvantages of using crowdfunding as a source of external finance?

A
  • No guarantee you’ll raise sufficient funds
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11
Q

What are the advantages of using share capital as a method of finance?

A
  • No interest payments
  • Raise large amounts of finance
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12
Q

What are the disadvantages of using share capital as a method of finance?

A
  • Ownership and profits go to investors
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13
Q

What are the advantages of using venture capitals as a method of finance?

A
  • Provide expertise and connections
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14
Q

What are the disadvantages of using venture capitals as a method of finance?

A
  • Ownership and profits go to investors
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15
Q

What are the advantages of using overdrafts as a method of finance?

A
  • Short-term fix for problems
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16
Q

What are the disadvantages of using overdrafts as a method of finance?

A
  • High interest rate
  • Bank has legal right to ask for repayment at any time
17
Q

What are the advantages of using leasing as a method of finance?

A
  • Maintenance and repair costs not responsibility of user
  • Useful when equipment not always needed
18
Q

What are the disadvantages of using leasing as a method of finance?

A
  • In long term more expensive than buying it
19
Q

What are the advantages of using trade credit as a method of finance?

A
  • Business can sell goods and make profit before paying
20
Q

What are the disadvantages of using trade credit as a method of finance?

A
  • Cost is sometimes higher if not paid earlier (some suppliers encourage early payment by offering discounts)
21
Q

What are the advantages of using grants as a method of finance?

A
  • Governments invest for free, no repayment
22
Q

What are the disadvantages of using grants as a method of finance?

A
  • Difficult to obtain as many compete for it and criteria is difficult to meet
23
Q

Why do businesses raise finance?

A
  • Pay liabilities
  • Fixed costs
  • Expand business
24
Q

What are the different unlimited liability business structures?

A
  • Sole traders
  • Partnerships
25
Q

What are the different limited liability business structures?

A
  • Public Limited Companies (PLC)
  • Private Limited Companies (Ltds)
26
Q

What are the implications of unlimited liability?

A
  • Take less risks as personal assets on the line
  • Unable to sell shares
  • Banks more willing to give loans as they can sell their assets (collateral) if unable to repay
27
Q

What are the implications of limited liability?

A
  • Personal assets not at risk
  • Can sell shares
  • Business can sue and be sued

Edexcel A level Business (2 decks)

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