business (sources of finance) Flashcards
source of finance
what is trade credit?
trade credit is a sources of finance that allows a business to buy stock and pay for them later.
what are the benefits of trade credit?
a business can still get in stock but pay for them later therefore cash outflow can be reduced for a set amount of time.
what is a disadvantsage of trade credit?
if a business does not pay in time the supplier may not sell to them again or may deliver late.
what is sources of finance?
how business will fund their activities when starting up their business
what are the different types of external sources of finance?
bank loan,share capital and overdraft.
what are the different types of internal sources of finance?
selling unwanted assets,retained profit and trade credit.
what is bank loan?
money that is lent to a business that is paid off over an agreed amount of time.
what is a disadvantage of a bank loan?
a disadvantage of a bank loan is that the business will have to pay interest back with the loan.
what is an advantage of bank loan?
regular repayments are made over a period of time which means the costs are spread out so it is less risky.
what is share capital?
share capital is money raised when a business becomes a private limited company and is allowed to sell shares on the stock market.
what is an advantage of share capital?
does not have to repay ,no interest implied and the business can choose who they sell shares to.
what is a disadvantage?
profits of the business are sold to share holders (these payments are also known as dividends) therefore business control starts to dilute.
what is overdraft?
an arrangement for a businesses account holder to spend more money then in their account>
what is a disadvantage of overdraft?
a disadvantage of overdraft is that your business could charge you in you go over your overdraft limit without permission.
what is a advantage of overdraft?
you can borrow what you need at the time and also may be cheaper then a loan.
what is retained profit?
saving profit of future investments
what is an advantage of retained profit?
you don’t have to borrow money or pay interest
what is a disadvantage of retained profit?
takes long to save and may not be enough to invest
what is selling unwanted assets?
selling building or machinery that isn’t being used to raise cash
what is an advantage of selling unwanted assets?
convenient can create space and make more profit
what is a disadvantage of selling unwanted assets?
they may not sell or they may not get the full value
