3.5.3- Making financial decisions: sources of finance Flashcards
3.5 Financial management
What is the internal sources of finance?
Retained profit
What are the external sources of finance?
- Overdrafts
- Debt factoring
- Share capital
- Loans
- Venture capital
- Crowdfunding
What are the short term sources of finance?
- Overdrafts
- Debt factoring
- Crowdfunding
- Retained profit
What are long-term sources of finance?
- Share capital
- Loans
- Venture capital
- Retained profit
What must businesses consider when choosing a source of finance?
- The legal structure of a business
- The amount of money required
- The level of risk involved
- If short-term or long-term finance is needed
What is retained profit?
- Profit saved and built up over years, then reinvested into the business
What is a strength of retained profit?
The business doesnt have to pay any interest on the money
What is a weakness of retained profit?
Shareholders may object as they would wish to recieve dividends
What is an overdraft?
Where banks let a business have a negative amount of money in its bank account.
What is a strenght of an overdraft?
They’re easy to arrange and flexible. Businesses can can borrow a little or big amount and only pay interest on the amount they use.
What is a weakness of overdraft?
Banks usually chare high rates of interests, can be unsuitable in the long-term
What is debt factoring?
Where banks and other financial institutions take unpaid invoices off businesses hands and give them instant cahs payment.
What is a strength debt facotoring?
Businesses can instantly get the omney they’re owed
What is a weakness of debt factoring?
The debt factoring company keeps some of the money as a fee.
