(D1) Sources of Finance

Question 1

Types of Finance

Answer 1

• Internal Finance
• External Finance

Question 2

What is internal finance?

Answer 2

Money that comes from within the business

Question 3

Types of Internal Finance

Answer 3

• Retained Profit
• Net Current Assets
• Sale of Assets

Question 4

What is retained profit?

Answer 4

The profits used to reinvest back in the business

Question 5

Advantages of Retained Profit

Answer 5

Does not have to be repaid and no interest payable

Question 6

Disadvantages of Retained Profit

Answer 6

Only available to businesses that make enough profit

Question 7

What is net current assets?

Answer 7

The money immediately available to the business used to cover day to day expenditure

Question 8

Advantages of Net Current Assets

Answer 8

• A quick way of raising money
• Selling of these assets reduced the costs of keeping them

Question 9

Disadvantages of Net Current Assets

Answer 9

May have to accept a lower price for inventory sold

Question 10

What is the sale of assets?

Answer 10

Assets can be sold to give the business cash

Question 11

Advantages of Sale of Assets

Answer 11

A good way of raising funds from assets that are no longer needed

Question 12

Disadvantages of Sale of Assets

Answer 12

• Not all business have enough assets to sell
• Some assets take to long to sell
• The assets may be sold below their actual value

Question 13

What is external finance?

Answer 13

Money that comes from outside the business

Question 14

Types of External Finance

Answer 14

• Owner’s Capital
• Loans
• Hire Purchase
• Crowd-Funding
• Debt Factoring
• Venture Capital
• Mortgage
• Leasing
• Trade Credit
• Grants
• Donations
• Invoice Discounting
• Peer-to-Peer Lending

Question 15

What is debt factoring?

Answer 15

Selling the business’s invoice(debt) to a third party

Question 16

What is the advantage of debt factoring?

Answer 16

Debt doesn’t have to be chased up anymore

Question 17

What is the disadvantage of debt factoring?

Answer 17

The invoices (debt) have to be sold at a lower price than the debt owed

Question 18

What is venture capital?

Answer 18

Funds from an investor in return for a share of the business

Question 19

What is leasing?

Answer 19

When a business rents out an asset without paying a large sum

Question 20

What are the disadvantages of leasing?

Answer 20

Can be expensive and not a good idea for the long term

Question 21

What is trade credit?

Answer 21

A customer can purchase a good and pay the supplier at a later date

Question 22

What is the disadvantage of trade credit?

Answer 22

Risk of late payments

Question 23

What is a grant?

Answer 23

Government payments to businesses given with the conditions such as new jobs

Question 24

What is an advantage of grants?

Answer 24

Do not need to be paid back

Question 25

What is invoice discounting?

Answer 25

When a business buys debt ?????

Question 26

What is peer-to-peer lending?

Answer 26

Investors use organisations to match them with business to invest in

Question 27

What is the advantage of peer-to-peer lending?

Answer 27

Useful for businesses that cannot secure investment

Question 28

What is the disadvantage of peer-to-peer lending?

Answer 28

There is a fee