3.5 Sources Of Finance

Question 1

What are retained profits

Answer 1

Profit from sales invested back into business

Question 2

What is sale of assets

Answer 2

Selling assets no longer used

Question 3

What is sale of assets and lease back

Answer 3

Sell assets and lease the same ones back

Question 4

What is an overdraft

Answer 4

Business allowed to spend money on credit up to a limit

Question 5

What is debt factoring

Answer 5

Selling customer accounts to debt factoring company and paid by company

Question 6

What is a bank loan

Answer 6

Money provided for stated purpose and paid back by interest

Question 7

What is a mortgage

Answer 7

Sum of money borrowed to secure a property and paid back in instalments

Question 8

What is a debenture

Answer 8

Investment to raise money for long term growth

Question 9

What is venture capital

Answer 9

Funds advanced to business in form of a share loan or capital

Question 10

What is share capital

Answer 10

Finance invested as result of sale of shares

Question 11

What are the advantages and disadvantages of retained profits

Answer 11

A: Immediate finance
Nothing to be paid back

D: Only if profitable
Dissatisfied shareholders

Question 12

What are the advantages and disadvantages of sale of assets

Answer 12

A: Quick money
Disposal of unused assets

D: No established credit
Have to negotiate lease contracts

Question 13

What are the advantages and disadvantages of sale of assets and lease back

Answer 13

A: converts assets to capital
D: Tax implications
Have to negotiate lease contacts

Question 14

What are the advantages and disadvantages of an overdraft

Answer 14

A: Quick and easy to arrange
Flexible

D: Can be expensive
Can be retracted form bank

Question 15

What are the advantages and disadvantages of debt factoring

Answer 15

A: Quick cash injection
Reduces risk of bad debts

D: Can impact company’s reputation

Question 16

What are the advantages and disadvantages of a bank loan

Answer 16

A: Large sums available
Monthly repayments

D: Interest has to be paid

Question 17

What are the advantages and disadvantages of a mortgage

Answer 17

A: Keep cash reserves
D: Have to pay interest

Question 18

What are the advantages and disadvantages of debentures

Answer 18

A: Less costly
Fixed return on secure investment

D: Opportunity costs
High interest possible

Question 19

What are the advantages and disadvantages of venture capital

Answer 19

A: Experience and contacts of venture capitalists
Investment in high risk business

D: Not huge amounts of finance available

Question 20

What are the advantages and disadvantages of share capital

Answer 20

A: Significant amount of finance available
Don’t have to pay dividends

D: Loss of ownership
Only for plc and ltd

Question 21

What are the 3 internal sources of finance

Answer 21

Retained profits
Sale of assets
Sale of assets and lease back

Question 22

What are the 7 external sources of finance

Answer 22

Overdraft 
Debenture 
Share capital
Venture capital 
Bank loan 
Mortgage 
Debt factoring

Question 23

What are the 7 forms of long term finance

Answer 23

Retained profits 
Sale of assets 
Sale of assets and lease back
Mortgage 
Debenture 
Venture capital 
Share capital

Question 24

What are the 2 forms of short term finance

Answer 24

Overdraft

Debt factoring

Question 25

Which form of finance can be short or long term

Answer 25

Bank loan