Finance - Sources of Finance

Question 1

Sources of Finance - ROTHAG

Answer 1

• retained profits
• owner’s personal finance
• trade credit
• hire purchase
• asset selling
• grant

Question 2

Retained profits

Answer 2

+ business doesn’t go into debt

- more difficult to grow, solve short-term cash flow issues

Question 3

Owner’s personal finance

Answer 3

+ allows owner to keep control
+ reduce the amount borrowed
- owner could lose investments
- difficult to withdraw back out once invested

Question 4

Trade credit

Answer 4

+ sell goods before paying for materials
+ helps business survive when poor cash flow
- discount for prompt payment is lost
- need to reach credit terms or they will be taken away

Question 5

Hire purchase

Answer 5

+ expensive equipment bought with only initial deposit
+ business own at end
- does not own until last instalment paid
- expensive if interest rates are high

Question 6

Asset selling

Answer 6

+ unused assets not giving any value
+ does not need to be repaid
- if urgent sometimes sold for less than worth

Question 7

Grants

Answer 7

+ does not need to be repaid

• usually one one off payments
• must reach certain requirements

Question 8

Factors affecting sources of finance

Answer 8

• short-term
• long-term
• interest rates
• type of organisation