3.5 Sources Of Finance Flashcards
What are retained profits
Profit from sales invested back into business
What is sale of assets
Selling assets no longer used
What is sale of assets and lease back
Sell assets and lease the same ones back
What is an overdraft
Business allowed to spend money on credit up to a limit
What is debt factoring
Selling customer accounts to debt factoring company and paid by company
What is a bank loan
Money provided for stated purpose and paid back by interest
What is a mortgage
Sum of money borrowed to secure a property and paid back in instalments
What is a debenture
Investment to raise money for long term growth
What is venture capital
Funds advanced to business in form of a share loan or capital
What is share capital
Finance invested as result of sale of shares
What are the advantages and disadvantages of retained profits
A: Immediate finance
Nothing to be paid back
D: Only if profitable
Dissatisfied shareholders
What are the advantages and disadvantages of sale of assets
A: Quick money
Disposal of unused assets
D: No established credit
Have to negotiate lease contracts
What are the advantages and disadvantages of sale of assets and lease back
A: converts assets to capital
D: Tax implications
Have to negotiate lease contacts
What are the advantages and disadvantages of an overdraft
A: Quick and easy to arrange
Flexible
D: Can be expensive
Can be retracted form bank
What are the advantages and disadvantages of debt factoring
A: Quick cash injection
Reduces risk of bad debts
D: Can impact company’s reputation
What are the advantages and disadvantages of a bank loan
A: Large sums available
Monthly repayments
D: Interest has to be paid
What are the advantages and disadvantages of a mortgage
A: Keep cash reserves
D: Have to pay interest
What are the advantages and disadvantages of debentures
A: Less costly
Fixed return on secure investment
D: Opportunity costs
High interest possible
What are the advantages and disadvantages of venture capital
A: Experience and contacts of venture capitalists
Investment in high risk business
D: Not huge amounts of finance available
What are the advantages and disadvantages of share capital
A: Significant amount of finance available
Don’t have to pay dividends
D: Loss of ownership
Only for plc and ltd
What are the 3 internal sources of finance
Retained profits
Sale of assets
Sale of assets and lease back
What are the 7 external sources of finance
Overdraft Debenture Share capital Venture capital Bank loan Mortgage Debt factoring
What are the 7 forms of long term finance
Retained profits Sale of assets Sale of assets and lease back Mortgage Debenture Venture capital Share capital
What are the 2 forms of short term finance
Overdraft
Debt factoring
Which form of finance can be short or long term
Bank loan
