Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

Enterprise IGCSE > Chapter #6 - Sources Of Finance > Flashcards

Chapter #6 - Sources Of Finance Flashcards

1
Q

Source of finance

A

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

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

Finance

A

The activities of an enterprise relating to money.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

Start-up

A

he period of an enterprise when it is first set up.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

Internal source of finance

A

Money that is found within the enterprise.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

Interest

A

Often, when an enterprise borrows money from a lender they will have to pay back the amount they borrow plus an agreed amount. The additional amount is known as the interest.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

What sources of finance are suitible for start-up enterprises + are they external or internal?

A
  • Personal savings (in)
  • Investment from family and friends (ex)
  • Bank overdrafts (ex)
  • Bank/building society loan (ex)
  • Leasing (ex)
  • Mortgages (ex)
  • Community (ex)
  • Grants (ex)
  • Subsidies (ex)
  • Crowdfunding (ex)
  • Selling shares (ex)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

Description of personal savings

(source of finance)

A

A small investmnent in a business, normally paid back in with interest (a return on the investment).

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

Advantages of personal savings

(source of finance)

A

You do not need approval to use your own money.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

Disadvantages of personal savings

(source finance)

A

If the enterprise is unsuccessful you may lose all the money you invested- this may cause hardship.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

Description intvestment from family & friends

(source finance)

A

A small investment from family or friends in a business normally paid back with interest (a return on investment).

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

Advantages of investment from family & friends

(source finance)

A
  • Family & Friends will often be keen to support your enterprise.
  • Usually charge lower interest than other lenders
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

Disasntages of investment from family & friends

(source finance)

A
  • Enterprise is unsuccessful => may lose all the money that friends & family have invested
  • Can cause upset
  • Can cause hardship
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

Description of bank overdraft

(source finance)

A

A form of short term lending by the bank when there is no money left in the enterprise’s bank.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

Advantages of bank overdraft

(source finance)

A

Can cover a short term financial issue.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

Disadvantages of bank overdraft

(source finance)

A

A very short term option as interest is charged at a very high rate.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

Description of bank/building society loan

(source finance)

A

A larger, longer term investment, payed back at an agreed interest rate

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

Advantages of bank/building society loan

(source finance)

A

Larger sums of money are available.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

Disadvantages of bank/building society loans

(source finance)

A
  • Must provide detailed finacial information to get the loan approved.
  • Inetrest rates can be very high
  • If you fail to male payments on the loan the bank
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

Description of leasing

(source finance)

A

Renting equipment or property

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

Advantages of leasing

(source finance)

A
  • Lower initial cost
  • Maintenance included
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

Disadvantages of leasing

(source finance)

A
  • No ownership
  • Can me expensive long-term because the fees may come to more than the equipment would have cost
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

Description of mortgages

(source finance)

A

Long-term loan secured on property (used to buy property) paid back at agreed interest.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

Advantages of mortgages

(source finance)

A
  • Large sums of money can be borrowed to buy property for business
  • Lower interest than other forms of borrowing.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q

Disadvantages of mortgages

(source finance)

A
  • Must provide detailed financial information to have mortgage approved.
  • Fail to make payments of time => bank may sieze property that was bought using mortgage.
25
Q

Description of community sources

(source finance)

A

Support from local communities/organzatisations by setting up fumds that can be used for projects that support community.

26
Q

Advantages of community sources

(source finance)

A
  • Supportive terms
  • Brings money into the community
  • Improves lives of those in community
  • Does not have to be repaid
27
Q

What sources of finance have no interest?

A
  • Grants
  • Subsides
  • Crowdfunding
  • Selling shares
  • Community sources
28
Q

Disadvantages of community sources

A
  • Can only spend on a community project
  • Limited amounts
  • Competitive application
  • If you don’t use the money as agreed, it may be taken away from you.
29
Q

Description of grants

A

Money offered to enterprises, ususally by governments, for specific projects.

30
Q

Advantages of grants

A
  • Can bring income into enterprises for expensive projects
  • It does not have to be paid back
31
Q

Disadvantages of grants

A
  • Difficult to obtain
  • Only allowed to spend money on specific project
  • If money is not used as agreed, money can be taken awa from you.
32
Q

Description of subsides

A

Financial assistance to reduce start-up costs. This is provided by government to a particular enterprise to support its development or public benefit. Subsides may be some form of cash payment or a reduced tax.

33
Q

Advantages of subsides

A
  • Reduces costs
  • No repayment
34
Q

Disadvantages of subsides

A
  • Only available for specific types of enterprises.
  • Compliance requirement (enterprise may have to meet certain conditions in order to get subsidy)
35
Q

Description of crowdfundings

A

Raising money from many people using websites and social media to encourage lots of people to to invest small amounts in return for a stake of the company.

36
Q

Advantages of crowdfunding

A
  • Wide investor access. So, even though each person invest very small amount, the overall sum is large
  • Idea validation
37
Q

Disadvantages of crowdfunding

A
  • Enterprise fails => each investor loses money
  • Strong marketing needed
  • May never raise money wanted (poor at using social media + websites)
38
Q

Description of selling shares

A

Selling ownership shares and the profits of enterprise to investors (called a dividend when paid to shareholders).

39
Q

Advantages of selling shares

A
  • Possible to raise large amounts of money (large capital)
  • No repayment obligation (but if company sells must give a percent of money)
40
Q

Disadvanatages of selling shares

A
  • Dilute ownership and share profits
    => shareholders expect to have their say in how enterprise is run
  • Selling too many shares can open up enterprise to being bought over completely and taken over
41
Q

External sources of finance

A

Money that is found outside the enterprise

42
Q

Assets

A

Objects that are owned by the enterprise

43
Q

Founders

A

The people who start a company

44
Q

What types of finance can an enterprise use to continue trading or expanding? Are they inetrnal or external?

A
  • Personal savings (int)
  • Retained profits (int)
  • Private institutions (ext)
  • Venture capital (ext)
  • Issue shares (ext)
45
Q

Private institutions description

A
  • Typically a microfinance lender
  • Aids people who do not have enough income to access traditional bank loans.
  • Microfinance organizations focus on helping entrepreneurs succeed
  • As part of the agreement they require the borrower to take a money management course.
46
Q

Private institutions advantages

A
  • No interest
  • Can access small loans with very little income
  • brrowers get training on how to manage their money
47
Q

Private institutions disadvantages

A
  • higher interset rates than banks
48
Q

Source and intereste of private institutions

A

External, no interest

49
Q

Description of retained profits

A

Profits kept in the business for reinvestment

50
Q

Retained profits advantages

A
  • No interest
  • No repayment
  • No approval needed
51
Q

Retained profits disadvantages

A
  • Dependant on business preformance
  • If you have shareholders, you may have to consult them on how much you can retain (because it lowers the dividend they get paid)
  • If your company has shareholders, they may impose conditions on how money can be used
52
Q

Venture capital description

A

Investement from venture capitalists (an individul or samll group which weigh up risks and rewards of investing). They expect a share of the enetrprise if they invest.

53
Q

Venture capital advantages

A
  • Large amounts
  • Are expirienced entrepreneurs with lots of knowledges and skills which can help business
54
Q

Venture capital disadvantages

A
  • Loss of control as venture capitalists expoect to control a lot of decision making in enetrprise (can lead to conflict)
  • Share of profits
55
Q

Issue shares description

A

Selling ownership shares to investors (to existing shareholders or new people).

56
Q

Issue shares advantages

A

Possible to raise large amounts of money

57
Q

Disadvantages of issue shares

A
  • Shareholders may expect dividends not only ownership
  • seling too many shares can risk enterprise being bought over completely and taken over
58
Q
A

Enterprise IGCSE (10 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions