(D1) Sources of Finance Flashcards
Types of Finance
- Internal Finance
- External Finance
What is internal finance?
Money that comes from within the business
Types of Internal Finance
- Retained Profit
- Net Current Assets
- Sale of Assets
What is retained profit?
The profits used to reinvest back in the business
Advantages of Retained Profit
Does not have to be repaid and no interest payable
Disadvantages of Retained Profit
Only available to businesses that make enough profit
What is net current assets?
The money immediately available to the business used to cover day to day expenditure
Advantages of Net Current Assets
- A quick way of raising money
- Selling of these assets reduced the costs of keeping them
Disadvantages of Net Current Assets
May have to accept a lower price for inventory sold
What is the sale of assets?
Assets can be sold to give the business cash
Advantages of Sale of Assets
A good way of raising funds from assets that are no longer needed
Disadvantages of Sale of Assets
- Not all business have enough assets to sell
- Some assets take to long to sell
- The assets may be sold below their actual value
What is external finance?
Money that comes from outside the business
Types of External Finance
- Owner’s Capital
- Loans
- Hire Purchase
- Crowd-Funding
- Debt Factoring
- Venture Capital
- Mortgage
- Leasing
- Trade Credit
- Grants
- Donations
- Invoice Discounting
- Peer-to-Peer Lending
What is debt factoring?
Selling the business’s invoice(debt) to a third party
