Financing A Business

Question 1

Bank overdrafts

Answer 1

Short term

• permission to withdraw more money than is on the acount
• must eventually pay back
• only given if you have good history with the bank

Question 2

Expenses due

Answer 2

Short Term

• delayed payment of bills
• using unpaid money to aid company’s
• must be careful or essential services may be cut off

Question 3

Factoring of Debtors

Answer 3

Short term
Short term
-when a business sells on debtors for a fraction of what the debtor owes them
-eg. Craig LTD owes Ciara LTD €50,000
Ciara LTD sells Petra LTD this debt for €45,000
Ciara LTD gets €45,000 fast
Petra LTD gets €5,000 profit in the long term

Question 4

Medium Term Finance list

Answer 4

• term loan
• leasing
• hire purchase

Question 5

Term Loan

Answer 5

Medium term

• loan and interest Re repaid in equal instalments per month over an agreed term
• the firm owns the asset as soon as it is purchased

Question 6

Leasing

Answer 6

Medium term

• renting an asset for an agreed amount of time
• profit made from using the asset should repay lease
• disadvantage -person never owns the asset

Question 7

Hire purchase

Answer 7

Medium Term

-similar to banks loan except firm does not own the asset until the final payment is paid

Question 8

Long term finance (5+plus) list

Answer 8

• ordinary shares
• long term loan
• retained profits
• issue of debentures
• sale and leaseback
• getting grants

Question 9

Ordinary shares as a mean of finance

Answer 9

Long Term

• internal
• selling of additional shares

Question 10

Long term loan as a form of finance

Answer 10

Long term

• external
• taking out mortgage for 20 years (approx)
• repayments of loan and interest are repaid over time

Question 11

Retained profits

Answer 11

Long term

• internal
• some profits are kept from shareholders so that money builds up
• shareholder, may sell their shares as they want more immediate income

Question 12

Issue of debentures

Answer 12

Long term

• debenture is a certificate acknowledging the existence of a loan or debt
• interest is paid, but actual debt is not
• borrowed amount is repaid in a lump sum at the end of the term

Question 13

Sale and Leaseback

Answer 13

-selling assets to investment company and lease it back over a period of time at an annual rent

Question 14

Getting grants

Answer 14

Long Term
Non-renewable lump sums given by the government or EU
EG. IDA grants for setting up factories in Ireland
Fás grants for providing jobs

Question 15

Short term finance list

Answer 15

• creditors
• bank overdrafts
• expenses due
• factoring of debtors