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Business Studies - Finance > Finance Sources > Flashcards

Finance Sources Flashcards

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1
Q

Give at least two examples of internal sources of finance for businesses.

A

At least two from:

  • Retained profit
  • Sale of assets
  • Owners capital
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2
Q

Why may retained profit be a good source of internal finance?

A
  • As it is a free source of finance that does not incur interest.
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3
Q

Why may retained profit be a bad source of internal finance?

A
  • Shareholders may wish to receive their money back in the form of a dividend.
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4
Q

Why may sales of assets be a good source of internal finance?

A
  • It frees up monetary value to be used in other areas of the business.
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5
Q

Why might sales of assets be a bad source of internal finance?

A
  • It causes the business to loose the benefit of having the assets i.e. no longer owning a delivery vehicle.
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6
Q

Is retained profit a long or short term method of internal finance?

A
  • Long term
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7
Q

Is sales of assets a short or long term method of internal finance?

A
  • Long term
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8
Q

Why might owners capital be a good source of internal finance?

A
  • It is a free source of finance that does not incur interest.
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9
Q

Why might owners capital be a bad source of internal finance?

A
  • Owners could loose their personal investment into the business.
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10
Q

Is owners capital a long or short term method of internal finance?

A
  • Long term
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11
Q

Give at least three examples of external sources of finance for businesses.

A

At least three from:

  • Overdrafts
  • Debt factoring
  • Bank loan
  • Mortgage
  • Venture capital
  • Share capital
  • Crowdfunding
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12
Q

What is an overdraft?

A

Where the bank allows a firm to take out more money than is in its bank account.

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13
Q

Is an overdraft a long or short term method of external finance?

A
  • Short term
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14
Q

Why might overdrafts be a good source of external finance for businesses?

A
  • It is a flexible way to fund working capital and acts as a buffer for day to day expenses.
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15
Q

What might overdrafts be a bad source of external finance for business?

A
  • The bank pay ask for repayment at any time and interest rates are high.
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16
Q

What is debt factoring?

A

Where a firm sells its debt to a third party factor.

17
Q

Is debt factoring a long or short term source of external finance?

A
  • Short term
18
Q

Why might debt factoring be a good source of external finance for a business?

A
  • It allows businesses to receive cash immediately.
19
Q

Why might debt factoring be a bad source of finance for a business?

A
  • Customers could be aware if debts are factored and loose faith in the company.
20
Q

Is a bank loan a long or short term source of finance?

A

Long term

21
Q

Why may bank loans be a good source of external finance for a business?

A
  • the loan can be negotiated to meet the requirements of the business.
  • the loan is paid back over a fixed amount of term
  • the bank or loan provider cannot ask for the money repayments before they are due.
22
Q

Why may bank loans be a bad source of external finance for businesses?

A
  • The business has to pay interest on the loan and may have to offer collateral in order to secure it.
23
Q

What is a mortgage?

A
  • A special type of loan which allows for the purchase of property.
24
Q

Why might a mortgage be a good source of external finance for businesses?

A

Because it is ideal for long term investments.

25
Q

Why might a mortgage be a bad source of external finance for a business?

A
  • Because large amounts of interest can be charged over its lifetime.
26
Q

What is venture capital?

A
  • Capital which is invested at an early stage by an individual or company in return for equity in the business.
27
Q

Is venture capital a long or short term source of external finance?

A

Long term

28
Q

Why might venture capital be a good external source of finance for businesses?

A
  • It can bring an added level of expertise to the business.
29
Q

Why might venture capital be a bad external source of finance for businesses?

A
  • The business owner may not want input from elsewhere into the running of the business.
30
Q

What is share capital?

A

An owners investment into a limited company in order to become a shareholder.

31
Q

Is share capital a long or short term source of finance?

A

Long term

32
Q

Why might share capital be a good source of external finance for businesses?

A
  • It allows the business to have access to very large amounts of capital without having to pay interest.
33
Q

Why might share capital be a bad source of external finance for businesses?

A

Because it is only available to private limited companies (LTD) and public limited companies (PLC)

34
Q

What is crowdfunding?

A

Raising money from a large number of people via crowdfunding websites.

35
Q

Is crowdfunding a long or short time source of finance for businesses?

A
  • Long term
36
Q

Why might crowdfunding be a good source of external finance for businesses?

A
  • It is cheap and easy to set up.
37
Q

Why might crowdfunding be a bad source of external finance for businesses?

A
  • It is not suitable for raising large amounts of money.

Business Studies - Finance (8 decks)

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