External Sources Of finance Flashcards
What are the 9 sources of external finance (O, TC, L, HP, BL, G, SI, M, VC
- Overdraft
- Trade credit
- Leasing
- Hire purchase
- Bank loan
- Grant
- Share issue
- Mortgage
- Venture capital
Define overdraft
An overdraft is where you take more money out than the account holds
Define trade credit
Trade credit is where suppliers let you buy now and pay later
Define leasing
Leasing is renting out property
Define hire purchase
Hire purchase is when buying expensive products you make an initial payment and pay the rest in instalments
Define bank loan
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
Define grant
A grant is where a sum of money is given by the GVMT to a firm for a particular purpose
Define share issue
A share issue is where companies pass new shares onto shareholders
Define mortgage
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
Define venture capital
A venture capital is a body that invests in your business and you buy that investment back after a period of time
Name 2 benefits of overdraft
- Cheap to organise
2. Reasonably easy to obtain
Name 2 disadvantages of using overdraft
- Can become expensive if the interest payments build up
2. The bank may reduce the level of overdraft your able to take out
Name 2 benefits of using trade credit
- Good cash flow for the business
2. Helps make sales when you can’s afford supply currently
Name 2 disadvantages of using trade credit
- Long term expense to the business
2. If the firm misses an instalment then they may loose the supplier
Name 2 benefits of grants
- Doesn’t cost the firm any money to obtain
2. Helps businesses grow
Name 2 disadvantages of grants
- Have to use it for the purpose the GVMT wants
2. Takes a long time to receive a grant
Name 2 benefits of share issues
- Can obtain wealthy shareholders
- Came access huge finances
- Excellent publicity for free (in the news)
Name 2 disadvantages of share issue
- May not be a buyer for the shares
- Means for a loss of business control
- Shares loose value
Name 2 benefits of leasing
- No longer responsible for the maintenance costs
2. Good for cash flow
Name 2 disadvantages for leasing
- Restricted with what you can do with the property by the contract
- Maintenance costs are built into the lease price
Name 2 advantages of loans/mortgages
- Makes purchases more affordable
- Can be easy to obtain if show good financial records
- Saves time as there is no saving time involved
Name 2 disadvantages of using loans/mortgages
- Long term expense to the business
- Can be rejected if poor financial records
- Can have high interest payments
Name a benefit of venture capital
Money and expertise in one
Name a disadvantage of using venture capital
Can be difficult to obtain if there aren’t buyers
