3.1 Sources of Finance Flashcards
Define personal funds
Finance from owner’s own pocket
A/DA of personal funds?
No interest
But risky
Define retained profits
The profit left after paying all deductions (such as corporation tax & dividends that is invested back into the business)
A/DA of retained profits
No interest
Takes time to build up
Defi of sale of assets
The compensated distribution of valuable property
A/DA of sale of asset
Easy turnover into cash, no need to sell shares
Makes a loss, will cost more when you try to buy it back
What are overdrafts?
When a bank agrees to a business borrowing up to an agreed limit as and when required
A/DA of overdrafts
Security, flexible
Interest, bank can change limit anytime they want
Defi of trade credit
Delaying of payment for goods/services, thereby allowing the business to obtain finance
A/DA of trade credit
Allows purchase of inventories
Loss of discounts, lack of trust & confidence from lenders
Defi of grants
Money given to small expanding businesses by larger agencies, often coming with requirements, that if met, does not have to be repaid
Defi of subsidies
Financial benefits given by the government to reduce costs & encourage increased production
A/DA of grants & subsidies
No need to repay back, adds prestige, no interest
Hard to get, strings attached
Defi of hire purchase
Asset sold to a company which agrees to make fixed repayments over an agreed period of time
A/DA of hire purchase
Immediate access to inventory, spread out costs
Interest, lack of security
