External sources

Question 1

External sources

Answer 1

sources of money from outside the business.

Question 2

Bank loan

Answer 2

business borrows a lump sum of money which will have to be repaid over time with interest

Question 3

bank loans: advantages

Answer 3

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

Question 4

bank loans: disadvantages

Answer 4

• have to back up the loan with security eg; assets

- pay back interest

Question 5

overdraft

Answer 5

a pre-arranged amount of money the business can use and pay back when it likes

Question 6

overdraft: advantages

Answer 6

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

Question 7

overdraft: disadvantages

Answer 7

• interest charged if withdrawn

- can be ended by the bank at any time

Question 8

Grants

Answer 8

amount of money that is given by either the European, national or local govt. to aid the creation of a business.

Question 9

grants: advantages

Answer 9

• doesnt have to be paid back
• helps start a new business
• provides jobs

Question 10

grants: disadvantages

Answer 10

• based on application

- not available for all businesses

Question 11

venture capital

Answer 11

(sometimes called an investor)

someone who invests in a start up business for a % share of the profits

Question 12

venture capital: advantages

Answer 12

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

Question 13

venture capital: disadvantages

Answer 13

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

Question 14

Hire Purchase

Answer 14

when you buy an asset and pay for it monthly but you do not own it until you make the final payment.

Question 15

Hire purchase: advantages

Answer 15

• cheaper than outright buying
• helps manage cash flow
• equipment regularly updated

Question 16

Hire purchase: disadvantages

Answer 16

• more expensive in the long run due to fees

Question 17

trade credit

Answer 17

not immediately paying suppliers for stock. - given an amount of time to repay it.

Question 18

trade credit: advantages

Answer 18

• no interest is payed or repayments

Question 19

trade credit: disadvantages

Answer 19

• suppliers might not be willing to provide the credit.

Question 20

share capital

Answer 20

money paid by shareholders to become owners of a limited company

Question 21

share capital: advantages

Answer 21

• no interest is payed or repayments

Question 22

share capital: disadvantages

Answer 22

• shareholders receive part of the profits (dividends)

- lose control of the business

Question 23

crowdfunding

Answer 23

small amounts of capital from a large number of individuals to finance a new business venture. Then you will give rewards or returns for the investment.

Question 24

crowdfunding: advantages

Answer 24

• can be a fast way to raise finance with no upfront fees
• a good way to test publics reaction to your product
• alternate finance options if you struggle to get a bank loan

Question 25

crowdfunding: disadvantages

Answer 25

• takes a lot of work to build up interest
• if you don’t meet your funding target, the money is returned to the investor
• Getting rewards or returns wrong can mean giving away too much of the business to investors.