3.1 Business Finance Sources

Question 1

Why do businesses need finance (3 examples)

Answer 1

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

Question 2

What are the types of finance?

Answer 2

Internal and external

Question 3

What is internal finance?

Answer 3

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

Question 4

Internal sources of finance? (There are 3)

Answer 4

Personal savings
Retained profits
Sale of assets

Question 5

Advantages of personal savings?

Answer 5

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

Question 6

Disadvantages of personal savings?

Answer 6

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

Question 7

Advantage of retained profit

Answer 7

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

Question 8

Disadvantages of retained profit?

Answer 8

Start ups may not have access to retained profits

Question 9

Advantage to selling assets?

Answer 9

Quick way to receive a large amount of finance

Question 10

Disadvantage to selling assets?

Answer 10

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)

Question 11

What is external finance?

Answer 11

Money obtained from outside the business
eg. a bank loan

Question 12

Examples of short term external sources of finance?

Answer 12

Credit card
Bank load
Overdraft

Question 13

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

Answer 13

Mortgage
Share capital
Business angel
Government grants
Crowd funding

Question 14

Advantage of credit cards?

Answer 14

Quick way to get more money

Question 15

Disadvantage to credit cards?

Answer 15

Paid back w (high) interest

Question 16

Advantage of bank overdraft?

Answer 16

No security needed

Question 17

Disadvantage to overdrafts?

Answer 17

Cant take large amounts
High rate of interest

Question 18

Advantage of bank loans?

Answer 18

Can obtain large sums of money

Question 19

Disadvantage to bank loans?

Answer 19

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

Question 20

Advantage of mortgage?

Answer 20

Enables repayments over long-term

Question 21

Disadvantage of mortgage?

Answer 21

Paid over long periods of time
Vulnerable to changing interest rates

Question 22

Advantage of share capital?

Answer 22

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

Question 23

Disadvantage to share capital?

Answer 23

Shared profit & dividends
Expensive to set up
Shared control

Question 24

Advantage to grants

Answer 24

Don’t have to pay back the money

Question 25

Disadvantages to government grants?

Answer 25

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

Question 26

Advantage to business angel?

Answer 26

Get guidance from a business specialist

Question 27

Disadvantage to business angel?

Answer 27

You would have to give shares in profit Shared control