external sources of finance

Question 1

Bank loan

Answer 1

business borrows a lump of money repaid overtime with interest

Question 2

Bank loan advantages

Answer 2

repay in instalments

easier cash flow

Question 3

Bank loan of disadvantages

Answer 3

have to back up the loan with security

pay back interest

Question 4

Overdraft

Answer 4

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

Question 5

Overdraft advantages

Answer 5

enable short term funding

covers day to day expenses

Question 6

Overdraft disadvantages

Answer 6

interest charged if overdrawn

can be ended by the bank at any time

Question 7

Grants

Answer 7

amount of money the European, national or local government to aid the creation of a business

Question 8

Grants advantages

Answer 8

Doesn’t have to be paid back
helps to start up a new business
creates jobs

Question 9

Grants disadvantages

Answer 9

based on application

not available for all businesses

Question 10

Venture capital

Answer 10

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

Question 11

Venture capital advantages

Answer 11

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

Question 12

Venture capital disadvantages

Answer 12

lose a percentage
long and complex process
financial projections are likely to be required
risk of conflict

Question 13

Hire purchase

Answer 13

you do not own the asset until you make the last payment

Question 14

Hire purchase advantages

Answer 14

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

Question 15

Hire purchase disadvantages

Answer 15

more expensive in the long run due to fees

Question 16

Trade credit

Answer 16

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

Question 17

Trade credit advantages

Answer 17

no interest paid or repayments

Question 18

Trade credit disadvantages

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 advantages

Answer 20

no interest paid 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 amount of capitals from a large amount of individuals to finance a new business venture

Question 23

Crowdfunding advantages

Answer 23

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

Question 24

Crowdfunding disadvantages

Answer 24

takes a lot of work to build up interest
if you dont meet your funding target the money is refunded to the investors
getting rewards or returns wrong can mean giving away too much of the business to investors