How do firms find the finance they need? (CH 16)

Question 1

Internal Sources of Finance

Answer 1

• Savings
• Retained Profit
• Working Capital
• Asset sales
• Crowd Funding (fundraiser)

Question 2

External Sources of finance

Answer 2

• Overdraft
• Bank loan
• Share capital
• Venture Capital
• Peer to peer lending
• Trade Credit
• Leasing

Question 3

What is an overdraft?

Answer 3

Allows a firm to temporarily borrow from the bank by spending more than is saved in their account.

(High interest rates + Limited to amount borrowed)

Question 4

Define Trade Credit

Answer 4

Credit which is extended to a firm by suppliers. So a good can be bought immediately and paid later

Question 5

Define Venture Capital

Answer 5

Funding from specialist firms in return for a share in a company

Question 6

Define Share capital

Answer 6

Raised by selling shares to investors

Question 7

Define Leasing

Answer 7

Long term agreement for rent that allows firms to use an asset without paying the full amount up front

Question 8

Define Retained Profit

Answer 8

Money left after deductions (taxes, interest and dividends given to shareholders), taken from total sales revenue