6.1 Sources of finance

Question 1

what is raising finance?

Answer 1

process of getting the funds needed for example, starting or expanding a business

Question 2

Why would new businesses need to raise finance?

Answer 2

To rent/buy a building
To buy vehicles
Advertising the business
Equiptment and machinery
Inventory of raw materials

Question 3

Why would an established business need to raise finance

Answer 3

To expand
To improve efficiency
To develop new products

Question 4

What is an internal source of finance?

Answer 4

Money that is avaliable from within the business (e.g Retained profits from previous years)

Question 5

what are the different types of internal sources of income?

Answer 5

Owner’s funds
Retained profits
Selling assets
Trade credit

Question 6

What are the different types of external sources of income?

Answer 6

Bank loans
Mortages
Overdrafts
New share issues
Loans for friends/family
Hire purchase
Government grants

Question 7

What are the factors of choosing sources of income for new businesses?

Answer 7

• The amount of personal finance available to the entreprenuer
• Legal structure of the business
• How risky the new business is judged to be

Question 8

What are the factors effecting choosing sources of income for an established businesses?

Answer 8

• Profitability of the business
• Assets owned by the business
• Past history and future prospects
• Legal structure of the business
• Amount of finance that has to be raised