Alternative Sources of Financing

Question 1

What is the key difference between traditional and alternative sources of finance?

Answer 1

Traditional finance comes from established institutions like banks and involves formal structures, while alternative finance uses decentralized platforms like P2P lending and crowdfunding, offering more flexibility and faster access.

Question 2

What are traditional sources of finance?

Answer 2

Traditional sources include bank loans, corporate bonds, and equity financing through stock issuance.

Question 3

What are alternative sources of finance?

Answer 3

Alternative sources include peer-to-peer lending, crowdfunding, cryptocurrency, angel investors, and asset leasing.

Question 4

Who finds it difficult to access traditional finance?

Answer 4

Start-ups, small businesses, and those with weak credit histories often find it difficult to access traditional finance due to stringent requirements.

Question 5

How does alternative finance improve accessibility?

Answer 5

Alternative finance platforms like crowdfunding and P2P lending allow businesses to raise funds without needing extensive credit checks or collateral.

Question 6

Why is alternative finance more flexible than traditional finance?

Answer 6

Alternative finance platforms offer fewer restrictions on the use of funds and quicker approval processes compared to the rigid terms and slow processes of traditional finance

Question 7

How is traditional finance regulated?

Answer 7

Traditional finance is highly regulated by government bodies, providing security but limiting flexibility.

Question 8

What is the risk with alternative finance?

Answer 8

Alternative finance operates in less regulated environments, increasing risks for both lenders and borrowers.

Question 9

What type of businesses benefit most from traditional finance?

Answer 9

Established businesses with steady cash flow and proven creditworthiness benefit from traditional finance.

Question 10

What type of businesses benefit from alternative finance?

Answer 10

Start-ups and high-growth businesses that lack a long financial history benefit from alternative finance.

Question 11

What is alternative finance?

Answer 11

It refers to financial assets outside traditional categories like stocks and bonds, including private equity, hedge funds, real estate, and collectibles.

Question 12

Name five types of alternative sources of finance.

Answer 12

Leasing
Crowdfunding
Peer-to-peer lending
Angel investors
Venture capitalists

Question 13

What is leasing in alternative finance?

Answer 13

Leasing is an agreement where the lessee uses an asset by making periodic payments, but ownership remains with the lessor.

Question 14

What are the advantages of leasing?

Answer 14

Lower upfront investment, tax benefits, and avoidance of obsolescence risks.

Question 15

What is franchising?

Answer 15

Franchising is when a company licenses rights to another individual or company to operate under its brand and business model.

Question 16

What are the advantages of franchising?

Answer 16

Faster business expansion, reduced capital investment, and leveraging an established brand.

Question 17

What is forfeiting in finance?

Answer 17

Forfeiting is the purchase of trade receivables at a discount without recourse to the seller, transferring payment risk to the forfeiter.

Question 18

How does peer-to-peer lending work?

Answer 18

P2P lending directly connects borrowers and lenders through online platforms, bypassing traditional financial institutions.

Question 19

What are the advantages of P2P lending?

Answer 19

High returns for lenders, easier access to loans, and fewer intermediaries.

Question 20

What are the stages of crowdfunding?

Answer 20

Seedling finance
Start-up finance
Fledgling finance
Establishment finance

Question 21

What is crowdfunding?

Answer 21

Crowdfunding is raising small amounts of money from a large number of people through platforms or social networks.

Question 22

What is venture capital?

Answer 22

It is financing provided to early-stage companies with high growth potential, along with strategic support.

Question 23

What are the stages of venture capital?

Answer 23

Seedling finance
Start-up finance
Fledgling finance
Establishment finance

Question 24

Who are angel investors?

Answer 24

Angel investors are individuals who provide early-stage funding in exchange for equity in a business.

Question 25

What is a disadvantage of angel investing?

Answer 25

It offers less structural support compared to venture capital, and finding a suitable angel investor can be time-consuming.

Question 26

What is real estate investment in alternative finance?

Answer 26

It involves investing in physical properties or property-based securities, seeking capital appreciation and cash flow.

Question 27

What are commodities in finance?

Answer 27

Commodities are raw materials like gold, silver, and oil that are traded and have intrinsic value due to their real-world uses.

Question 28

What is farmland investment?

Answer 28

It is an alternative investment combining real estate and commodities, involving the purchase of farmland to generate income from agriculture.

Question 29

Why are art and collectibles considered alternative investments?

Answer 29

They have value due to their historical significance or rarity, and their value can appreciate over time, especially in niche markets.

Question 30

What are cryptocurrencies in alternative finance?

Answer 30

Cryptocurrencies are digital currencies that provide opportunities for capital appreciation and income through mechanisms like staking.