Finance - Sources of Finance

Question 1

• Describe Bank Overdraft as a source of finance
• Give one advantage and disadvantage of this

Answer 1

Business can overdraw an amount of money from their account (-ve bank balance)

ADVANTAGES:
* Easy to set up → quick access to finance
* Is paid back in installments → easy for the business to budget

DISADVANTAGES:
* Must be paid back fast → can get expensive due to high interest rates

Question 2

• Describe Government Grant as a source of finance
• Give one advantage and disadvantage of this

Answer 2

Finance given from the government to encourage entrepreneurs to start a company. Expert knowledge is also given

ADVANTAGES:
* No need to repay it → saves money

DISADVANTAGES:
* Criteria needs to be met → hard to get

Question 3

• Describe Trade Credit as a source of finance
• Give one advantage and disadvantage of this

Answer 3

Business can purchase goods from suppliers with a delayed payment (buy now pay later)

ADVANTAGES:
* Can sell goods using materials not yet paid for → improves cash flow

DISADVANTAGES:
* Limited time for repayment → could be charged if not paid in time
*

Question 4

• Describe Government Grant as a source of finance
• Give one advantage and disadvantage of this

Answer 4

Finance given from the government to encourage entrepreneurs to start a company. Expert knowledge is also given

ADVANTAGES:
* No need to repay it → saves money

DISADVANTAGES:
* Criteria needs to be met → hard to get