Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

Business - Section D - Sources Of Business Finance > External Sources Of Finance > Flashcards

External Sources Of Finance Flashcards

You may prefer our related Brainscape-certified flashcards:
Series 66 flashcards SIE Exam flashcards Series 63 flashcards Series 79 Top-Off Exam flashcards Series 7 Top-off Exam flashcards CFA flashcards Series 65 flashcards
1
Q

What are the 15 external sources of finance ?

A

-Owners capital
-loans
-crowd funding
-mortgages
-venture capital
-debt factoring
-hire purchase
-leasing
-trade credit
-grants
-donations
-peer to peer lending
-invoice discounting
-early payment discounting
-debenture

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

What is owners capital ?

A

Owners capital - this is the money invested into the business from the owners personal savings

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

What are advantages of owners capital ?

A

-no interest payments or need to repay
-high level of commitment from the owner

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

What are disadvantages of owners capital ?

A

-amount available is likely to be limited
-if more than one owned could cause friction if not all able to contribute the same amount

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

What are loans ?

A

Loans - money borrowed from a financial institution normally for a set period of time and for a specific purpose

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

What are advantage of loans ?

A

-regular pre agreed repayments make planning and budgeting easy
-ownership or control is not lost

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

What are disadvantages of loans ?

A

-interest is charged on the amount borrowed
-interest rates can fluctuate
-often secured against an asset which can be repossessed if fail to make repayments

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

What is crowd funding ?

A

Crowd funding - involves raising funds online by asking people to invest a small amount of money each

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

What are advantages of crowd funding ?

A

-offers the ability to raise finance from a large number of investors
-no interest paid

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

What are disadvantages of crowd funding ?

A

-partial loss of ownership
-no guarantee that the crowd fund will attract sufficient investment to meet the proposal

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

What are mortgages ?

A

Mortgages - long term loans to purchase property normally around 25 years

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

What are advantages of mortgages ?

A

-large amount of finance can be raises and repaid over a prolonged period of time
-ownership or control isn’t lost

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

What are disadvantages of mortgages ?

A

-interest is charged on the amount borrowed
-interest rates can fluctuate
-asset such as property repossessed if the repayments are missed

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

What is venture capital ?

A

Venture capital - this is an investment from an experienced entrepreneur in return for a stake in the business

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

What are advantages of venture capital ?

A

-finance is provided by a business professional who will offer advice and mentor alongside the investment

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

What are disadvantages of venture capital ?

A

-partial loss of ownership and control
-conflict can arise between entrepreneur and the venture capitalist

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

What is debt factoring ?

A

Debt factoring - this involves selling on of a businesses debts to a third party in order to receive the cash quickly

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

What are the advantages of debt factoring ?

A

-speeds up the flow of Cash into the business
-the factor company takes on the risk of bad debt

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

What are the disadvantages of debt factoring ?

A

-only receive a percentage of the amount owed therefore reducing profits

20
Q

What is hire purchase ?

A

Hire purchase - involves paying to use an asset in instalments to spread the cost over its useful life , asset remains property of the seller until the final instalments

21
Q

What are advantages of hire purchase ?

A

-avoids the need to pay a lump sum for the use of an asset
-regular instalments make budgeting easy
-spreads out the cost

22
Q

What are disadvantages of hire purchase ?

A

-the overall amount paid for the use of an asset is likely to be higher than if purchased outright

23
Q

What is leasing ?

A

Leasing - involves paying to use an asset in instalments to spread the cost , ownership of the asset stays with the supplier

24
Q

What are advantages of leasing ?

A

-responsibility for maintaining and repairing the asset stays with the supplier
-spreads out the cost of the asset

25
Q

What are disadvantages of leasing ?

A

-overall amount paid for the use of an asset is likely to be higher than if purchased outright
-never own the asset so the payments are ongoing

26
Q

What is trade credit ?

A

Trade credit - this is a period of time offed by suppliers to allow customers to purchase goods and services now and pay at an alternative later date

27
Q

What are advantages of trade credit ?

A

-delays the need to pay for goods and services helping with cash flow
-no loss of ownership or control

28
Q

What are disadvantages of trade credit ?

A

-only suitable as a short term of finance

29
Q

What are grants ?

A

Grants - lump sum of money provided to a business by the government or another organisation to be used for a specific purpose

30
Q

What are advantages of grants ?

A

-no need to repay and no interest charges
-no loss of ownership or control

31
Q

What are disadvantages of grants ?

A

-requires a lengthy application process
-only awarded if meet certain criteria
-can only spend on specific purpose
-may not cover the costs

32
Q

What are donations ?

A

Donations - these are sums of money given voluntarily to a charity

33
Q

What are advantages of donations ?

A

-no need to repay and no interest charges
-no loss of ownership or control

34
Q

What are disadvantages of donations ?

A

-likely to be small amounts only
-unpredictable

35
Q

What is peer to peer lending ?

A

Peer to peer lending - this involves one business lending money to another business in return for interest payments

36
Q

What are advantages of peer to peer lending ?

A

-interest rates can be lower than lending from traditional financial institutions
-fixed interest rates make it easy to plan and to budget

37
Q

What are disadvantages of peer to peer lending ?

A

-amounts available may be limited
-provided for a short period of time only

38
Q

What is invoice discounting ?

A

Invoice discounting - this involves securing a loan against invoices owed by the business customers , the loan is repaid as payments for invoices received

39
Q

What are advantages of invoice discounting ?

A

-improved cash flow as less money tied up in debtor
-can pay own debt faster
-funds are released quickly

40
Q

What are disadvantages of invoice discounting ?

A

-profit is reduced as discounting company will charge a fee
-could become reliant on it getting into a endless debt cycle

41
Q

What is early payment discounting ?

A

Early payment discounting -reductions offered to customers making a product or service cheaper , often applied as a percentage

42
Q

What are advantages of early payment discounting ?

A

-can be used to improve cash flow as encourage debtors to repay quickly
-no loss of ownership or control
-no need to repay and no interest charges

43
Q

What are disadvantages of early payment discounting ?

A

-debtors may choose not to take advantage of the offer

44
Q

What is a debenture ?

A

Debenture - involves a form of bond or long term loan which is issued by a company , fixed rate of interest is paid throughout the loan and loan is paid on an agreed date

45
Q

What are advantages of debentures ?

A

-fixed rate of interest
-only interest is paid until the loan is redeemed

46
Q

What are disadvantages of debentures ?

A

-paid back in a lump sum on an agreed date
-secured against an asset

47
Q

What are some factors which may influence the choice of finance a business chooses ?

A

-amount of money required
-how quickly the money is needed
-cheapest option available
-amount of risk involved
-length of time of the requirements for the finance

Business - Section D - Sources Of Business Finance (2 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions