chapter 6

Question 1

source of finance

Answer 1

the way in which an enterprise gets the money it needs to finance an activity

Question 2

finance

Answer 2

the activites of an enterprise relating to money

Question 3

start-up

Answer 3

the period of an enterprise when it is first set up

Question 4

internal sources of finance

Answer 4

money that is found within the enterprise

Question 5

interest

Answer 5

often, when an enterprise borrows money from a lender they will have to pay back the amount they borrow pus an agreed amount. the additional amount is called interest.

Question 6

why do enterprises need finance

Answer 6

to buy or rent premises
purchase equipment
additional funds for activities

Question 7

sources of finance suitable for start-up businesses

Answer 7

personal savings(internal source of finance
investment from family and friends (external source of finance)
bank overdrafts (external)
bank-building society loan(external)
leasing(external)
mortgages(external)
community sources(external)
grants(external)
subsidies(external)
crowdfunding(external)
selling shares(external)

Question 8

sources of finance suitable for start-up businesses
personal savings

Answer 8

a small investment in a business usually paid back in interest
advantages- dont need approval to use ur own money
if successful you get ur money back+ interest
disadvantages- if the enterprise if unsuccessful you lose the money

Question 9

sources of finance suitable for start-up businesses
investment from friends or family

Answer 9

a small investment in a business normally paid back in interest
advantages- often keen to support you
usually charge lower interest than other lenders
disadvantages- if enterprise is unsuccessful lose money
can cause upset

Question 10

sources of finance suitable for start-up businesses
bank overdrafts

Answer 10

a form of short term lending by the bank when no money is left in enterprises bank
advantages- can cover a short term fincanial issue
disadvantages- high interest

Question 11

sources of finance suitable for start-up businesses
bank/building society loan

Answer 11

a larger, longer investment paid back in agreed interest rate
advantages- larger sums of money involves
disadvantages- need to provide detailed fincancial info. to get loan approved.
interest rate is high
if you fail to make payments then the bank seizes assets

Question 12

sources of finance suitable for start-up businesses
leasing

Answer 12

rent a piece of equipment
advantages- short term this is cheaper than buying
after a fixed time the equipment is updated
disadvantages- long term this can be expensive

Question 13

sources of finance suitable for start-up businesses
mortgages

Answer 13

a larger longer loan used to buy property and paid back in agreed interest
advantages- large sums of money
much lower interest rate
disadvantages-need to provide detailed fincancial info. to get loan approved.
if you fail to pay back they will take the property

Question 14

sources of finance suitable for start-up businesses
community sources

Answer 14

some communitry organizations set up funds that can be used for projects that support the community
advantages- can bring money into the community= improves lives there
dont need to pay back
disadvantages- can only spend money on a community project
need to use the money as agreed otherwise taken

Question 15

sources of finance suitable for start-up businesses
grants

Answer 15

money offered to the enterprise usually by gov. for specific projects
advantages- can bring income into enterprises for expensive projects
doesnt need to be paid back
disadvantages- can only spend money on that specific project otherwise taken

Question 16

sources of finance suitable for start-up businesses
subsidies

Answer 16

a gov. will sometimes provide a subsidy to a particular enterprise to support its development or for public benefit
some form of cash payment or a reduced rate of tax
advantages- will either bring cash into the enterprise or reduce tax bill
disadvantages- only available for specific types of enterprises
may have to meet certain conditions

Question 17

sources of finance suitable for start-up businesses
crowdfunding

Answer 17

using websites and social media to encourage large no. of people to invest small amount of money in return for a stake
advantages- investments together= large amount of money
disadvantages- if fails then each investor loses money
sometimes dont raise enough

Question 18

sources of finance suitable for start-up businesses
selling shares

Answer 18

people invest money into the enterprise for a share of ownership and the profits
advantages- possible to raise a large sum.
disadvantages- shareholders expect to have a say in how it is run
selling to many can lead to the enterprise being bought completely or taken over

Question 19

external sources of finance

Answer 19

money found outside the enterprise

Question 20

assets

Answer 20

objects that are owned by the business

Question 21

founders

Answer 21

the people who start the company

Question 22

sources of finance for continuing trading and expansion

Answer 22

personal savings
retained profits
privat institutions
venture capital
issue shares

Question 23

sources of finance for continuing trading and expansion
personal savings

Answer 23

a small investment in a business usually paid back in interest
advantages- dont need approval to use ur own money
if successful you get ur money back+ interest
disadvantages- if the enterprise if unsuccessful you lose the money

Question 24

sources of finance for continuing trading and expansion
retained profits

Answer 24

money that is kept aside from profits of the enterprise to be reinvested
advantages- do not need approval to use this money
dont need to pay interest
disadvantages- if your enterprise has stakeholders you may need to consult them bc it can reduce how much they make

Question 25

sources of finance for continuing trading and expansion
private institutions

Answer 25

typically a microfinance lender which aids people who dont have enough income to access traditinal bank loans
advantages- borrowers get training on how to manage the money
disadvantages- interest paid on loan
much higher rate

Question 26

sources of finance for continuing trading and expansion
venture capital

Answer 26

an individual or group weigh up the risks and rewards of investing in an enterprise
if investing they expect a share
advantages- are experienced enterpreneurs.
can raise alot of money
disadvantages- will expect to control alot of the decision-making in the business can lead to conflict

Question 27

sources of finance for continuing trading and expansion
issues shares

Answer 27

offering additional shares in the enterprise to exsisting shareholders or new people for a share of ownership
advantages- raise large sum of money
disadvantages- shareholders expect dividends
selling too many shares risk being bought over completely