3.1 Business Finance Sources Flashcards
Why do businesses need finance (3 examples)
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
What are the types of finance?
Internal and external
What is internal finance?
Money that is obtained from within the business
eg. last years profits
Internal sources of finance? (There are 3)
Personal savings
Retained profits
Sale of assets
Advantages of personal savings?
Quick and easy to access
Don’t have to pay interest
Disadvantages of personal savings?
Takes time to remake the profit
Not all business may have sufficient savings
Advantage of retained profit
You don’t have to pay it back (unlike a bank load)
Flexible uses
Disadvantages of retained profit?
Start ups may not have access to retained profits
Advantage to selling assets?
Quick way to receive a large amount of finance
Disadvantage to selling assets?
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)
What is external finance?
Money obtained from outside the business
eg. a bank loan
Examples of short term external sources of finance?
Credit card
Bank load
Overdraft
Examples of long term sources of external finance? (There are 5)
Mortgage
Share capital
Business angel
Government grants
Crowd funding
Advantage of credit cards?
Quick way to get more money
Disadvantage to credit cards?
Paid back w (high) interest