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Business JSL > 6 - Sources of finance > Flashcards

6 - Sources of finance Flashcards

1
Q

What is meant by short term finance

A

Up to 3 years

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2
Q

What is meant by medium term finance

A

3-10 years

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3
Q

What is meant by long term finance

A

10+ years

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4
Q

What are some sources of finance

A 
Divestment
Sale of fixed assets
Retained profits
Factoring
Sale/lease back
Personal savings
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5
Q

What is divestment

A

Stopping investment into an area of the business

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6
Q

Advantages of divestment

A

Focus on fewer areas

Specialisation

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7
Q

Disadvantages of divestment

A

Less diversification

Redundancies

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8
Q

What is sale of fixed assets

A

Selling capital assets to obtain finance

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9
Q

Advantage of sale of fixed assets

A

Large source

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10
Q

Disadvantages of selling fixed assets

A

Time consuming

Costs

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11
Q

What is retained profit

A

Investing profits from previous years back in to the firm

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12
Q

Advantages of retained profit

A

Easy to obtain

No cost

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13
Q

Disadvantages of retained profit

A

Can’t pay high dividends

Opportunity costs

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14
Q

What is factoring

A

Selling debts to debt collectors

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15
Q

Advantages of factoring

A

Quick

Get rid of long term issues

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16
Q

Disadvantages of factoring

A

Expensive

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17
Q

What is sale and leaseback

A

Selling your own property then leasing it back

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18
Q

Advantages of sale and leaseback

A

No longer responsible for upkeep

High finance

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19
Q

Disadvantages of sale and leaseback

A

Long term costs in rent
No longer own asset
Subject to their t’s and c’s

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20
Q

What is personal savings

A

Where the owner invests their own money into the firm

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21
Q

Advantages of personal saving investment

A

Easily obtainable

Cheap

22
Q

Disadvantages of personal savings investment

A

Likely opportunity cost to owner

High personal risk for owner

23
Q

What are some examples of external sources of finance

A 
Overdraft
Trade credit
Leasing
Hire purchase
Bank loan
Grant
Share issue
Mortgage
Venture capital 
Debenture
24
Q

What is an overdraft

A

What the bank let you spend more than what is in your account

25
Q

Advantages of an overdraft

A
  • cheap

- easily obtainable

26
Q

Disadvantages of overdraft

A

Expensive and not suitable if long term

Business may overspend

27
Q

What is trade credit

A

Suppliers allow you to buy goods now but pay later for goods

28
Q

Advantages of trade credit

A

Improves cash flow

Builds trust and respect

29
Q

Disadvantages of trade credit

A

Lose supplier if not honoured

Less likely EOS

30
Q

What is leasing

A

A legal agreement where you pay monthly for the use of something

31
Q

Advantages of leasing

A

Not responsible for upkeep

No high initial cost

32
Q

Disadvantages of leasing

A

Don’t own asset so restricted

Poor upkeep

33
Q

What is hirepurchase

A

Paying for something in monthly instalments after a deposit

34
Q

Advantages of hire purchase

A

Good for cash flow

35
Q

Disadvantages of hire purchase

A

Don’t own it until paid off

Long term

36
Q

What is a bank loan

A

When a bank lends you money, that over a fixed period has to be paid back with a rate of interest

37
Q

Advantages of bank loan

A

Large amount

Improve credit score

38
Q

Disadvantages of bank loan

A

Interest costs

Poor credit score if not paid back

39
Q

What is a grant

A

Sum of money given by government for specific purposes

40
Q

Advantages of grant

A

No costs

Large amount, helps startups

41
Q

Disadvantages of grants

A

Specific reason

Restrictions

42
Q

What is share issue

A

A firm offers for sale new shares

43
Q

Advantages of share issue

A

Obtain large amount
Good publicity
Easy on stock exchange

44
Q

Disadvantages of share issue

A

Difficult and costly process

Increase pressure

45
Q

What is a mortgage

A

Bank or building society lends money at interest for purchase of a property

46
Q

Advantages of mortgage

A

Pay in instalments

Improve credit score

47
Q

Disadvantages of mortgage

A

Possibility of bankruptcy

Pay interest

48
Q

What is venture capital

A

Another firm invests into your business

49
Q

Advantages of venture capital

A

Large amount

Gain expertise

50
Q

Disadvantages of venture capital

A

Loss of control

Pressure

51
Q

What is a debenture

A

Borrowing money/loan from the public at a fixed rate of interest

52
Q

Factors considered when deciding on finance

A 
Amount required
Reasons for it
Time scale
Type of business
Security 
State of economy

Business JSL (11 decks)

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