Internal sources of finance

Question 1

Define overdraft

Answer 1

Arranged by the bank

Question 2

Define trade credit

Answer 2

When a business delay paying its suppliers, which leave the business in a better cash position

Question 3

Define leasing

Answer 3

Allow the firm to use an asset but not have to purchase it. Monthly leasing payments are made with interest.

Question 4

Define hire purchase

Answer 4

Allow a business to buy a fixed asset over a long period of time with monthly

Question 5

Pros of hire purchase

Answer 5

Does not have to find a large cash sum to buy the asset

Question 6

Pros of leasing

Answer 6

The care and maintenance are carried out by the leasing company

Question 7

Pros of issue of shares

Answer 7

No interest has to be paid

Question 8

Pros of bank loans

Answer 8

Quick to arrange and varying lengths of time

Question 9

Cons of bank loan

Answer 9

Security and collateral is usually required

Question 10

Cons of hire purchase

Answer 10

Interest payments can be quite high

Question 11

Cons of leasing

Answer 11

The total cost of the leasing will be higher than purchasing the assets