External & Internal Finance

Question 1

Methods of internal

Answer 1

. Owner’s capital
. Retained profit
. Sale of assets

Question 2

Advantages of internal

Answer 2

. Availability
. Cheap
. No credit checks
. Third parties not involved

Question 3

Disadvantages internal

Answer 3

. Limited
. Not tax-deductible
. Inflexible compared to external
. No inflantionary benefits
. Opportunity costs

Question 4

Sources of external finance

Answer 4

. Family and friends
. Banks
. Peer-to-peer lending
. Business angels
. Crowdfunding
. Other businesses

Question 5

Methods of finance

Answer 5

. Loans -> 3 types: bank loans, mortgages, debentures
. Share capital -> 3 types: preference shares, ordinary shares, deferred shares
. Venture capital
. Bank overdraft
. Leasing -> advantages and disadvantages
. Trade credit
. Grants