External Sources Of finance

Question 1

What are the 9 sources of external finance (O, TC, L, HP, BL, G, SI, M, VC

Answer 1

1. Overdraft
2. Trade credit
3. Leasing
4. Hire purchase
5. Bank loan
6. Grant
7. Share issue
8. Mortgage
9. Venture capital

Question 2

Define overdraft

Answer 2

An overdraft is where you take more money out than the account holds

Question 3

Define trade credit

Answer 3

Trade credit is where suppliers let you buy now and pay later

Question 4

Define leasing

Answer 4

Leasing is renting out property

Question 5

Define hire purchase

Answer 5

Hire purchase is when buying expensive products you make an initial payment and pay the rest in instalments

Question 6

Define bank loan

Answer 6

A bank loan is where the bank gives you money and you pay it back over a medium to long term basis with added interest costs

Question 7

Define grant

Answer 7

A grant is where a sum of money is given by the GVMT to a firm for a particular purpose

Question 8

Define share issue

Answer 8

A share issue is where companies pass new shares onto shareholders

Question 9

Define mortgage

Answer 9

A mortgage is where you receive a lend to buy property and pay it back over a medium to long term period with added interest payments

Question 10

Define venture capital

Answer 10

A venture capital is a body that invests in your business and you buy that investment back after a period of time

Question 11

Name 2 benefits of overdraft

Answer 11

1. Cheap to organise

2. Reasonably easy to obtain

Question 12

Name 2 disadvantages of using overdraft

Answer 12

1. Can become expensive if the interest payments build up

2. The bank may reduce the level of overdraft your able to take out

Question 13

Name 2 benefits of using trade credit

Answer 13

1. Good cash flow for the business

2. Helps make sales when you can’s afford supply currently

Question 14

Name 2 disadvantages of using trade credit

Answer 14

1. Long term expense to the business

2. If the firm misses an instalment then they may loose the supplier

Question 15

Name 2 benefits of grants

Answer 15

1. Doesn’t cost the firm any money to obtain

2. Helps businesses grow

Question 16

Name 2 disadvantages of grants

Answer 16

1. Have to use it for the purpose the GVMT wants

2. Takes a long time to receive a grant

Question 17

Name 2 benefits of share issues

Answer 17

1. Can obtain wealthy shareholders
2. Came access huge finances
3. Excellent publicity for free (in the news)

Question 18

Name 2 disadvantages of share issue

Answer 18

1. May not be a buyer for the shares
2. Means for a loss of business control
3. Shares loose value

Question 19

Name 2 benefits of leasing

Answer 19

1. No longer responsible for the maintenance costs

2. Good for cash flow

Question 20

Name 2 disadvantages for leasing

Answer 20

1. Restricted with what you can do with the property by the contract
2. Maintenance costs are built into the lease price

Question 21

Name 2 advantages of loans/mortgages

Answer 21

1. Makes purchases more affordable
2. Can be easy to obtain if show good financial records
3. Saves time as there is no saving time involved

Question 22

Name 2 disadvantages of using loans/mortgages

Answer 22

1. Long term expense to the business
2. Can be rejected if poor financial records
3. Can have high interest payments

Question 23

Name a benefit of venture capital

Answer 23

Money and expertise in one

Question 24

Name a disadvantage of using venture capital

Answer 24

Can be difficult to obtain if there aren’t buyers