Finance For A Business

Question 1

Sources (Types) of Finance for a Business

Answer 1

● A business may need to obtain money from places outside of the organisation
to meet their financial needs at various stages.
● Sources (types) of finance can be short-term, medium-term or long-term
depending on the need of the business
● It is important that when deciding on a source of finance, a business uses the
matching principle- this means matching the source of finance with the use of
finance
● For example: a Business would not use a short-term source of finance to buy a
large item like a building (a long term use)

Question 2

Sources (Types) of Finance for a Business

Answer 2

● A business may need to obtain money from places outside of the organisation
to meet their financial needs at various stages.
● Sources (types) of finance can be short-term, medium-term or long-term
depending on the need of the business
● It is important that when deciding on a source of finance, a business uses the
matching principle- this means matching the source of finance with the use of
finance
● For example: a Business would not use a short-term source of finance to buy a
large item like a building (a long term use)

Question 3

Checking In! Short Term Sources of Finance

Answer 3

Answer the following questions in your activity copy:
1. Alex Jones from Green Fingers LTD needs to paint the walls of his garden
centre. What short term source of finance might he use? Give a reason for
your answer.
2. If Alex decides to take out a bank Overdraft and overdraw his current account
by €1,000 for 3 months and interest is charged on the overdraft at1% per
month, what interest will he pay?
3. Alex has applied to his local bank for a credit card. Give Alex one piece of
advice about using a credit card?

Question 4

Checking In! Long-Term Sources of Finance

Answer 4

1. Alex Jones has decided to expand Green Fingers LTD and he wants to build an
   extension on to his garden centre. What source of long-term finance would
   you advise him to take out? Give a reason for your answer.
2. What are the costs involved with the source of finance you have suggested
   that Alex uses?

Question 5

Factors to consider when choosing a source of fina

Answer 5

1. Purpose: why is the business taking out the loan? Is it for a short-term,
   medium-term or long-term item?
2. Amount: what can the business afford to pay back?
3. Cost: are there any extra costs (like interest) involved with the chosen source
   of finance?
4. Security: are the lenders looking for collateral (an asset that is promised to the
   lender if the source of finance is not paid back by the agreed date)