3.1 Business Finance Sources Flashcards

1
Q

Why do businesses need finance (3 examples)

A

To start a new business
To expand the business
To buy new equipment
To buy premesis
To buy stocks
To pay bills
To cover a fall in demand
To pay staff

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2
Q

What are the types of finance?

A

Internal and external

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3
Q

What is internal finance?

A

Money that is obtained from within the business
eg. last years profits

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4
Q

Internal sources of finance? (There are 3)

A

Personal savings
Retained profits
Sale of assets

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5
Q

Advantages of personal savings?

A

Quick and easy to access
Don’t have to pay interest

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6
Q

Disadvantages of personal savings?

A

Takes time to remake the profit
Not all business may have sufficient savings

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7
Q

Advantage of retained profit

A

You don’t have to pay it back (unlike a bank load)
Flexible uses

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8
Q

Disadvantages of retained profit?

A

Start ups may not have access to retained profits

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9
Q

Advantage to selling assets?

A

Quick way to receive a large amount of finance

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10
Q

Disadvantage to selling assets?

A

Assets lose value overtime so you might not be able to get as much money for it as you payed for it (they depreciate in value)

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11
Q

What is external finance?

A

Money obtained from outside the business
eg. a bank loan

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12
Q

Examples of short term external sources of finance?

A

Credit card
Bank load
Overdraft

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13
Q

Examples of long term sources of external finance? (There are 5)

A

Mortgage
Share capital
Business angel
Government grants
Crowd funding

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14
Q

Advantage of credit cards?

A

Quick way to get more money

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15
Q

Disadvantage to credit cards?

A

Paid back w (high) interest

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16
Q

Advantage of bank overdraft?

A

No security needed

17
Q

Disadvantage to overdrafts?

A

Cant take large amounts
High rate of interest

18
Q

Advantage of bank loans?

A

Can obtain large sums of money

19
Q

Disadvantage to bank loans?

A

Need to be approved first (possibility for being rejected)
Vulnerable to changing interest rates

20
Q

Advantage of mortgage?

A

Enables repayments over long-term

21
Q

Disadvantage of mortgage?

A

Paid over long periods of time
Vulnerable to changing interest rates

22
Q

Advantage of share capital?

A

Fast way to get large amounts of money to expand a business
Enables large scale investments

23
Q

Disadvantage to share capital?

A

Shared profit & dividends
Expensive to set up
Shared control

24
Q

Advantage to grants

A

Don’t have to pay back the money

25
Q

Disadvantages to government grants?

A

Usage of money may be limited
Limited in size
Hard to get

26
Q

Advantage to business angel?

A

Get guidance from a business specialist

27
Q

Disadvantage to business angel?

A

You would have to give shares in profit
Shared control