External Sources Of Finance

Question 1

Advantages of getting Loans from family and friends

Answer 1

• Can be quick and easy to arrange
• there may be no interest payments

Question 2

Disadvantages of loans from family and friends

Answer 2

Family and friends may have limited financial resources
The money may be needed at short notice
The business plan is less likely to be scrutinized for errors or issues

Question 3

New share issue

Answer 3

When a company sells its shares in return for a payment

Question 4

Advantages of new share issues

Answer 4

Can raise large sums of finance
No interest payments

Question 5

Disadvantages of new share issues

Answer 5

• only available to companies
• shareholders will expect to receive part of profits as dividends
• owners may lose control of the business if the own less then 50%

Question 6

What is a loan

Answer 6

An amount of money a business gets from the back or a building society which is then repaid over time in installments

Question 7

What is mortgage

Answer 7

A special type of loan from a bank or building society that is used to buy land and building. Usually lent over a long period of time.

Question 8

Advantages of loans and mortgage

Answer 8

Can be paid over a long period of time
May be arranged relatively quickly

Question 9

Disadvantages of loans and mortgage

Answer 9

Can be costly in terms of interest payments
Collateral may have to be provided for large loans

Question 10

DisAdvantages of loans from family and friends

Answer 10

May have limited financial resources
The money may need to be repaid at short notice
The business plan is less likely to be scrutinized for issues

Question 11

What is overdraft

Answer 11

A flexible loan which a business can use whenever necessary up to an agreed limit

Question 12

Advantages overdraft

Answer 12

Flexible - only paid for when needed
Can help business overcome cash shortages

Question 13

Disadvantages of overdraft

Answer 13

Can be costly in terms of interest charge
Bank may ask for repayment at short notice

Question 14

What is hire purchase

Answer 14

Source of finance where business pay for assets by making an initial payment and then paying installments over time

Question 15

Advantages and disadvantages of hire purchase

Answer 15

Adv - spreads the cost if assets such as vehicles over time
Dis - assets is not owned u til final payment is made
Can have high interest payments

Question 16

Goverment grant

Answer 16

A sum of money given to a business by government for a specific reason

Question 17

Advantages of government grant

Answer 17

May not be repaid
Can provide finance for new businesses

Question 18

Disadvantages of government grant

Answer 18

Can require complex forms to be completed
Will only provide part of the finance needed