external sources of finance

Question 1

external sources

Answer 1

money from outside of business

Question 2

bank loan

Answer 2

businesses borrow a large sum of money that must be paid over time with interest.

Question 3

bank loan advantages

Answer 3

repay in installments,makes cash flow easier,don’t issue shares

Question 4

bank loan disadvantages

Answer 4

back up loan with security,pay back interest

Question 5

overdraft

Answer 5

pre-arranged amount of money that a business is allowed to use and pay back when it likes

Question 6

overdraft advantages

Answer 6

short term funding,flexibility to review funding,covers day to day expenses

Question 7

overdraft disadvantages

Answer 7

interest charged if overdrawn,can be ended by bank at any time

Question 8

grants

Answer 8

money given by government to aid creation of businesses and doesn’t have to be paid back.

Question 9

grants advantages

Answer 9

doesn’t have to be paid back,start up new businesses,creates jobs

Question 10

grants disadvantages

Answer 10

based on application,not available for all businesses

Question 11

venture capital

Answer 11

business person who invests in start up businesses for a % share of profits

Question 12

venture capital advantages

Answer 12

large sums of money for investment,expertise to help business,easier to attract other sources of finance

Question 13

venture capital disadvantages

Answer 13

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

Question 14

hire purchase

Answer 14

when you will buy an asset and pay for it monthly

Question 15

hire purchases advantages

Answer 15

cheaper,manage cash flow,equipment regularly updated

Question 16

hire purchase disadvantages

Answer 16

more expensive in long run due to fees

Question 17

trade credit

Answer 17

Not immediately paying suppliers for stock you are given a certain amount of days

Question 18

trade credit advantages

Answer 18

not interest paid,helps cah flow

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

not interest paid or repayments

Question 22

share capital disadvantages

Answer 22

shareholders receive part of profits,lose control of business

Question 23

crowdfunding

Answer 23

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

Question 24

crowdfunding advantages

Answer 24

fast way to raise finance with no upfront fees,test public reaction of product,alternative fiance option if you struggle to get bank loan or other funding.

Question 25

crowdfunding diasadvantages

Answer 25

lot of work to build up interest,don’t meet funding target money is returned to inestors,getting rewards or returns wrong can mean giving away too much of the business to investors