3.1 Finance and support for a Small Business Flashcards
What are the short term sources of finance?
Trade Credit
Overdraft
Give 3 Example of Long term sources of finance
Any 3 from the following:
Bank (Loan) Own savings Selling shares Past sales and profit Crowd funding Venture capitalists Friends and Family Government Grant
What does Equity Capital mean?
Money is put into the business by its owners
What sources of finance does small businesses use?
Own savings
Investments from Partnerships, shareholders, friends and family
What is the main source of finance for a small business?
Banks
What are the most common type of bank loans?
Overdraft
Mortgage
What is an overdraft?
Firms are allowed to be in the red for a short period of time
What type of bank account is an overdraft used in?
Current Account
What are firms given?
Firms are given an overdraft limit which they can’t exceed
Give the advantages and disadvantages of an overdraft
Advantages:
Lets you pay into a negative balance
Gives time to pay money back that you own
Easily get hold of cash
Disadvantages:
Limit to how much money you can withdraw
High Interest Rate
What is Trade Credit?
Business doesn’t pay for goods until one month after they’ve been delivered
Give the advantages and disadvantages of Trade Credit
Advantages:
It’s an interest free loan for the company buying goods
Increases work capital for business
Disadvantages:
If business owes too much money, the supplier might stop working with them until money is repaid
Companies that get trade credit are likely to give it to their clients
What is the difference between a lease and a hire purchase?
Lease - A contract where a product/house is rented
Hire Purchase - A system where the business pays in regular instalments while using it
What is a Mortgage?
Money borrowed from the bank when buying a house and this is payed back with monthly payments over a number of years
Give the advantages and disadvantages of a mortgage
Advantages:
Has a fixed rate
Structured repayments every month
Disadvantages:
The interest rate may vary which can become expensive
The lender may insist on a deposit
Give 2 Sources of advice for Finance and describe what they do
2 from the following:
High Street Banks - They offer business banking advice to new businesses. The advice offered includes free consultations with accounts or lawyers and provide help completing a business plan
Government Grants - Financial award offered to unemployed people to train and start their own business. This can also be offered to companies that are willing to invest and set up their own business in areas of low income and high unemployment
Accountants and Solicitors:
Accountants offer advice to large businesses and support with finance (selecting best loans and the correct amount of tax)
Solicitors help with legal issues such as selecting the correct legal structure
What is the difference between an accountant and a solicitor?
Accountants:
Offers advice to large businesses and support with finance such as selecting the best loans and correct amount of tax
Solicitors:
Helps with legal issues such as selecting the correct legal structure
