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Business Studies AQA GCSE Flashcards > 6.1 Sources Of Finance > Flashcards

6.1 Sources Of Finance Flashcards

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1
Q

What are sources of finance?

A

A means of raising funds that are needed by a
business for purposes such as expansion

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2
Q

What are internal sources of finance?

A

Money that is available within the business, for example retained profits from previous years

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3
Q

What are external sources of finance?

A

Refers to money that comes from outside the business,for example, a loan from a bank

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4
Q

What is an asset?

A

Something that is owned by a business, such as land, buildings, vehicles and machinery

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5
Q

What are examples of internal sources of finance?

A
  • Retained profits
  • Selling unwanted assets
  • Trade credit
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6
Q

What are retained profits?

A

The part of the business’s annual profits which is kept within the business to finance future investments

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7
Q

What is Trade credit?

A

A period of time which suppliers allow customers before payment for supplies must be made

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8
Q

What are the benefits of trade credit?

A
  • A ‘free’ source of finance
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9
Q

What are the drawbacks of trade credit?

A

Usually only available for up to 90 days

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10
Q

What are the benefits of selling assets?

A
  • Money may be available quickly
  • Avoids interest charges
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11
Q

What are the drawbacks of selling assets?

A
  • Assets not available to business in the future
  • Sale and leaseback requires future payments to use the asset
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12
Q

What are the benefits of retained profits?

A
  • Avoids paying interest on a loan
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13
Q

What are the disadvantages of retained profits?

A
  • Only available to profitable businesses
  • Owners receive less of the profits
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14
Q

What is a share issue?

A

When a company sells additional shares in the business to raise finance

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15
Q

What is a loan?

A

An amount of money provided to a business for a stated purpose in return for regular repayments, including interest charges. Usually lent over a short period of time, for example 5 years.

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16
Q

What is a mortgage?

A

A loan from a bank or building society that is used to buy land and buildings such as an office or shop. Usually lent over a long period of time, for example 25 years

17
Q

What is an overdraft?

A

A flexible loan which businesses can use, whenever necessary, up to an agreed limit

18
Q

What is a hire purchase?

A

A source of finance under which businesses pay for assets by making an initial payment and then paying instalments over time

19
Q

What is a government grant?

A

A sum of money given to an entrepreneur or business by the government for a specific purpose

20
Q

What are external sources of finance?

A
  • Loans from family and friends
  • New share issue
  • Loan
  • Mortgage
  • Overdraft
  • Hire purchase
  • Government grants
21
Q

What are the benefits of loans from family and friends?

A
  • Can be quick and easy to arrange
  • There may be no interest payments
22
Q

What are the drawbacks of loans from family and friends?

A
  • Family and friends may have limited financial resources
  • The money may need to be repaid at short notice
  • The business plan is less likely to be scrutinised for errors or issues
23
Q

What are the benefits of a new share issue?

A
  • Can raise large sums of finance
  • No interest payments
24
Q

What are the drawbacks of a new share issue?

A
  • Only available to companies
  • Shareholders will expect to receive part of profits as dividends
  • Owners may lose control of the business if they sell more than 50 per cent of all shares
25
Q

What are the benefits of loans and mortgages?

A
  • Assets can be paid for over a long period of time
  • May be arranged relatively quickly
26
Q

What are the drawbacks of loans and mortgages?

A
  • Can be costly in terms of interest payments
  • Collateral may have to be provided for large loans
27
Q

What are the benefits of overdrafts?

A
  • Flexible - only paid for when needed
  • Can help businesses to overcome cash shortages
28
Q

What are the drawbacks of overdrafts?

A
  • Can be costly in terms of Interest charges
  • Bank may ask for repayment at short notice
29
Q

What are the benefits of hire purchase?

A
  • Spreads the cost of assets such as vehicles over time
30
Q

What are the drawbacks of hire purchase?

A
  • Assets are not owned until the final payment is made
  • Can have high interest payments
31
Q

What are the benefits of government grants?

A
  • May not need to be repaid
  • Can provide finance for new businesses
32
Q

What are the drawbacks of government grants?

A
  • Can require complex forms to be completed
  • Will only provide part of finance needed
33
Q

What sources of finance would new businesses use?

A
  • Trade credit
  • Loan from family and friends
  • Government grants
34
Q

What sources of finance would established businesses use

A
  • Retained profits
  • A new share issue
  • Loans and mortgages
  • Overdrafts

Business Studies AQA GCSE Flashcards (29 decks)

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