Finance, sources of finance

Question 1

what is internal sources of finance?

Answer 1

money that is generated within the business or by the businesses owner

Question 2

what is external sources of finance?

Answer 2

money raised from outside of the business

Question 3

what are internal sources of finance examples?

Answer 3

-sale of assets
-retained profit
-owners capital

Question 4

what are the advantages and disadvantages of sale of assets?

Answer 4

advantages
- established businesses can quickly sell old/unused machinery that is not effecting production in order to raise finance
- no interest to be paid
- can gain large sum of money
disadvantages
- small businesses require machinery to ensure productivity is good, therefore selling assets will effect productivity and limit businesses growth

Question 5

what are the advantages and disadvantages of retained profit?

Answer 5

advantage
-cheap as no interest
-immediately available
disadvantages
- cannot be used for businesses other purposes, e.g.) entrepreneurs disposable income, bonuses for staff
- shareholders apply pressure of wanting profit

Question 6

what are the advantages and disadvantages of owners capital?

Answer 6

advantages
- no borrowing
-no interest
quick and convenient as it is easily available
disadvantages
- owner may not have enough savings
- cannot be used for personal use

Question 7

what is debt factoring?

Answer 7

sale of invoices at a discount, to gain immediate finance. a third party will buy them in order to make gain when invoices are paid off

Question 8

what are examples of external sources of finance?

Answer 8

overdrafts, bank loan , share capital, leasing, debt factoring , trade credit

Question 9

what are the advantages and disadvantages of bank loans?

Answer 9

advantages
- made available for long to medium term
- can be used for example on purchasing land
disadvantages
- hard to obtain, security is often required to to gain, for example an asset can be sold to pay off bank loan

Question 10

what are the advantages and disadvantages
of overdraft?

Answer 10

advantages
- only borrow what is needed
- cheaper than a loan
-quick and convenient to set up
disadvantages
- bank can limit/cancel it at any time and demand for an immediate repayment
- borrowing limits can be low and of high interest

Question 11

what are the advantages and disadvantages of leasing?

Answer 11

advantages
- equipment can be fixed and regularly updated by manufacturers
disadvantages
- can be expensive over time and business can make a loss on it

Question 12

what stakeholders do sources of finance effect?

Answer 12

• suppliers may be lost if trade credit is not repaid within 30-90 days
  -shareholders gain control due to share capital