Examples of External Sources

Question 1

Bank Loan

Answer 1

Where a business will borrow a lump sum of money that must be repaid over time with interest.

Question 2

Bank Loan Advantages

Answer 2

• repayments in installments
• makes cash flow easier
• don’t have to issue shares

Question 3

Bank loan Disadvantages

Answer 3

• Have to backup the loan with security

- pay back interest

Question 4

Overdraft

Answer 4

A pre-arranged amount of money that the business is allowed to use (When it has none) and pay back when it likes

Question 5

Overdraft Advantages

Answer 5

• enable short term funding
• flexibility to review the funding
• covers day to day expenses

Question 6

Overdraft Disadvantages

Answer 6

• interest charges if overdrawn,can be ended by the ban at any time

Question 7

Grants

Answer 7

An amount of money that is given by either the European,national or local government,to aid in the creation of a business.This money DOES NOT have to be payed back

Question 8

Grants Advantages

Answer 8

• doesn’t have to be payed back
• helps start up new businesses
• creates jobs

Question 9

Grants Disadvantages

Answer 9

• based on application

- not available for all businesses

Question 10

Venture capital

Answer 10

Sometimes called an investor,it is a business person who invests in start up businesses for a % share of the profits

Question 11

Venture capital Advantages

Answer 11

• potential for large sums of money for investment
• expertise to help the business
• makes it easier to attract other sources of finance

Question 12

Venture Capital Disadvantages

Answer 12

• lose a percentage of the business
• a long and complex process
• expert financial projections are likely to be required
• risk of conflict or perceived interference

Question 13

Hire Purchase

Answer 13

Is when you will buy an asset and pay for it monthly.You do not own the asset until you make the last payment

Question 14

Hire Purchase Advantages

Answer 14

• cheaper that buying outright
• helps to manage cash flow
• equipment regularly updated

Question 15

Hire purchase disadvantage

Answer 15

• More expensive in the long run due to fees

Question 16

Trade credit

Answer 16

This means not immediately paying suppliers for stock.You are given a certain amount of days to pay

Question 17

Trade credit Advantage

Answer 17

• No interest to be paid,helps cash flow

Question 18

Trade credit Disadvantage

Answer 18

• suppliers might not be willing to provide the credit

Question 19

Share capital

Answer 19

Money paid by shareholders to become owners of a limited company

Question 20

Share capital Advantage

Answer 20

• No interest or repayments

Question 21

Share capital Disadvantages

Answer 21

• Shareholders receive part of the profits

- Lose control of the business

Question 22

Crowdfunding

Answer 22

Small amounts of capital from a large number of individuals to finance a new business venture

Question 23

Crowdfunding Advantages

Answer 23

• it can be a fast way to raise finance with no upfront fees
• Good way to test publics reaction of your product
• Alternative finance option if you struggle to get a bank loan or other funding