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Business > 25 Sources of finance > Flashcards

25 Sources of finance Flashcards

1
Q

Define bank overdraft

A

The bank allows the business to draw more money from their bank account than they actually have in it

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2
Q

State the advantages of a bank overdraft

A
  1. Flexible as only use the overdraft amount for the time needed
  2. A good short term solution to a cash flow problem
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3
Q

State the disadvantages of a bank overdraft

A
  1. Only suitable for smaller amounts
  2. Has to be repaid within a short amount of time
  3. Unreliable as bank can ask for it back at any time
  4. Interest or charges are paid
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4
Q

Bank overdraft: short or long term?

A

Short term

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5
Q

Define loan capital

A

Fixed agreement between business and bank
The amount, plus interest, must be repaid in regular instalments over a fixed period

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6
Q

State the advantages of loan capital

A
  1. Large amounts of money can be borrowed
  2. Easy to budget as the same amount is repaid each month - reliable
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7
Q

State the disadvantages of loan capital

A
  1. Interest payable
  2. If repayments cannot be kept up, the business risks getting a poor credit rating or being made bankrupt
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8
Q

Loan capital: short or long term?

A

Long

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9
Q

Define hire purchase

A

Buying specific goods with a loan, putting a deposit down and then paying off the rest until the item is owned (monthly repayments)

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10
Q

State the advantages of hire purchase

A
  1. Expensive equipment can be used immediately and paid off over time
  2. Better to budget as monthly instalments known
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11
Q

State the disadvantages of hire purchase

A
  1. Often high interest rates
  2. Can be repossessed if don’t keep up instalments
  3. Item not owned until last payment is made
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12
Q

Hire purchase: short or long term?

A

Long term

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13
Q

Define unsecured bank loan

A

When the bank lends money without the security of an asset to sell if the loan is not repaid

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14
Q

State the advantages of unsecured bank loan

A
  1. Cannot lose whatever is bought with the loan
  2. No claim on assets
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15
Q

State the disadvantages of unsecured bank loan

A
  1. Interest rates are higher than secured loans, such as mortgages
  2. Some businesses will find it difficult to get if they have poor credit history
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16
Q

Unsecured bank loan: short or long term?

A

Both

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17
Q

Define mortgage

A

Long-term loan to buy property or land

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18
Q

State the advantages of mortgages

A

Lower interest rates than standard loans

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19
Q

State the disadvantages of mortgages

A

If repayments are not met, the building or land can be repossessed

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20
Q

Mortgages: short or long term?

A

Long

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21
Q

Define credit card

A

Buying resources immediately, often online, and paying for them later
Provided by a bank

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22
Q

State the advantages of credit cards

A
  1. Can order online – materials etc.
  2. Can buy things can’t afford at that moment
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23
Q

State the disadvantages of credit cards

A

Very high interest rates if not paid within specified time

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24
Q

Credit card: short or long term?

A

Short term

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25
Q

Define retained profit

A

Profit held by a business rather than returning it to the owners which may be used in the future

26
Q

State the advantages of retained profit

A
  1. No interest to pay
  2. Money is available straight away
27
Q

State the disadvantages of retained profit

A
  1. When it is spent there is none left if needed
  2. Can cause conflict with shareholders as reduces their dividends
28
Q

Retained profit: short or long term?

A

N/A

29
Q

Define selling assets

A

Selling items that a business no longer needs

30
Q

State the advantages of selling assets

A
  1. Frees up space and gets rid of unwanted items whilst raising money
31
Q

State the disadvantages of selling assets

A
  1. Depending on the asset, not much money is raised
  2. f you then need it, you don’t have it
32
Q

Selling assets: short or long term?

A

N/A

33
Q

Define personal savings

A

The money entrepreneurs put into their business

34
Q

State the advantages of personal savings

A
  1. No interest to pay
35
Q

State the disadvantages of personal savings

A
  1. Not usually large amounts of money available
36
Q

Personal savings: short or long term?

A

N/A

37
Q

Define share capital

A

Selling shares of a business to raise money

38
Q

State the advantages of share capital

A
  1. No interest to pay
  2. Large amounts of money can be raised
39
Q

State the disadvantages of share capital

A
  1. Shareholders expect dividends (share of profit)
  2. Owners can lose control as more shares are sold
40
Q

Share capital: short or long term?

A

Long term

41
Q

Define debenture

A

When businesses borrow from the public but do not give ownership out
This loan is repaid to the public with interest

42
Q

State the advantages of debenture

A
  1. Large amounts of money can be raised
  2. Debenture holders have no voting rights
43
Q

State the disadvantages of debenture

A

Fixed rate of return payable even if business is not successful

44
Q

Debenture: short or long term?

A

Long term

45
Q

Define venture capital

A

Specialist investors (individuals or companies) who provide money often to a new business
They have some control and a share in profit

46
Q

State the advantages of venture capital

A
  1. Get help, support and networks from experienced people
  2. Often invest in more risky ventures that banks won’t
47
Q

State the disadvantages of venture capital

A
  1. They take a stake (share) so shared profits & control
  2. Usually only for around 5 years
48
Q

Venture capital: short or long term?

A

Long term

49
Q

Define trade payables

A

Buying resources from suppliers, such as raw materials, and paying for them later

50
Q

State the advantages of trade payables

A
  1. Gives the business more cash to use in the immediate future
  2. Early payment often has discounts
51
Q

State the disadvantages of trade payables

A
  1. Cost of goods often higher when bought on credit
  2. Delaying payment too much can cause problems with suppliers
52
Q

Trade payables: short or long term?

A

Short term

53
Q

Define crowd funding

A

Where a large number of individuals (the crowd) invest in a business venture using an online platform by donating small amounts

54
Q

State the advantages of crowd funding

A
  1. Can raise large amounts of finance with no fees/charges
  2. Valuable form of marketing as investors often become loyal customers
55
Q

State the disadvantages of crowd funding

A
  1. No guarantee that anyone will want to invest
  2. Your ideas might be stolen if not copyrighted/patented
56
Q

Crowd funding: short or long term?

A

N/A

57
Q

Define business angels

A

Individuals (often wealthy ones) who invest in start-ups/new businesses

58
Q

State the advantages of business angels

A
  1. No repayments or interest
  2. Access to their contacts and experience
59
Q

State the disadvantages of business angels

A
  1. May not invest a large amount (around £10,000 to £100,000)
  2. Not always easy to find a suitable angel
  3. Share profits and ownership
60
Q

Business angels: short or long term?

A

Long term

61
Q

Define short term finance

A

Money borrowed for one year or less

62
Q

Define long term finance

A

Money borrowed for more than one year

Business (24 decks)

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