external sources of finance

Question 1

bank loan

Answer 1

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

Question 2

advantages of bank loan

Answer 2

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

Question 3

disadvantages of bank loan

Answer 3

have to backup loan with security

pay back interest

Question 4

overdraft

Answer 4

prearranged amount of money that the business is allowed to use and pay back when it likes

Question 5

advantages of overdraft

Answer 5

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

Question 6

disadvantages of overdraft

Answer 6

interest charged if overdrawn, can be ended by the bank 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 need to be paid back.

Question 8

advantages of grants

Answer 8

doesn’t have to be paid back
helps start up the new business
creates jobs

Question 9

disadvantages of grants

Answer 9

based on application

not available for all businesses

Question 10

venture capital

Answer 10

called an investor it is a business person who invests in a startup business for a share of the profits

Question 11

advantages of venture capital

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

disadvantages of venture capital

Answer 12

lose a percentage of the business
a long complex process
risk of conflict

Question 13

hire purchase

Answer 13

when you buy an asset and pay monthly. you do not own the asset until you make the last payment. leasing is similar but you will never own it

Question 14

advantages of hire purchase

Answer 14

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

Question 15

disadvantages of hire purchase

Answer 15

more expensive in long run

Question 16

trade credit

Answer 16

not immediately paying suppliers for stock.given a certain amount of days to pay

Question 17

advantages of trade credit

Answer 17

no interest needs to be paid

Question 18

disadvantages of trade credit

Answer 18

suppliers not willing to provide the credit

Question 19

share capital

Answer 19

money paid by shareholders to become owners of a limited company

Question 20

advantages of share capital

Answer 20

no interest paid or repayments

Question 21

disadvantages of share capital

Answer 21

shareholders receive part of the profits lose control of the business

Question 22

crowdfunding

Answer 22

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

Question 23

advantages of crowdfunding

Answer 23

fast way to raise finance with no upfront fees
good way to test public’s reaction of your product
alternative finance option if you struggle to get a bank loan or other funding

Question 24

disadvantages of crowdfunding

Answer 24

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