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business paper 2 > raising finance > Flashcards

raising finance Flashcards

1
Q

what is finance used for

A

day to day spending

fixed assets

eages

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2
Q

what is a source of a finance

A

provider of finance

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3
Q

what is a method of finance

A

way provider gives finance

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4
Q

short term finance

A

finance using repaid within 1 year

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5
Q

long term finance

A

needed for long term investments

repaid within 3 years or more

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6
Q

internal sources of finance definition

A

come from within the business

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7
Q

examples of internal sources of finance

A

retained profit
owners capital
selling assets
study tip: ROS

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8
Q

retained profit

A

where profit is retained and built up for later investment

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9
Q

what businesses will not be able to use retained profit

A

newer businesses as dont yet have enough profit to save for later investments

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10
Q

adv of retained profit

A

business doesnt have to pay INTEREST

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11
Q

dis of retained profit

A

shareholders may want to receive profit as dividends

may cause business to miss out on investment opportunities

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12
Q

owners capital

A

money the owner invests into the business from their personal savings

sole traders and partnerships are likely to use when starting up

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13
Q

adv of owners capital

A

easy to access

doesn’t need paying back

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14
Q

dis of owners capital

A

amount of finance raised is limited

depends on personal wealth of owner

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15
Q

selling assets

A

sell some of their assets e.g old machinery to generate capital

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16
Q

what types of businesses is selling assets not suitable for

A

newer businesses as dont have any spare assets

unlikely to have assets they dont use

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17
Q

adv of selling assets

A

dont have to pay interst on money raised by selling assets

makes it cheap source of finance

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18
Q

dis of selling assets

A

means business no longer owns the asset

takes a long time to sell asset and get the cash

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19
Q

external sources of finance

A

comes from outside the business

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20
Q

examples of external sources of finance

A

crowd funding
other businesses
peer to peer lending
freinds and family
a
business angels
banks

study tip: FABB COP

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21
Q

friends and family

A

owners of small businesses may ask help financially from freinds and family

22
Q

adv of using freinds and family

A

little or no interest

may agree to a flexible repayment

23
Q

dis of freinds and family

A

may be limited depeding on how much person willing to give/ may be little amout

could put strain on relationship if they need money back quickly

24
Q

banks

A

offer methods of finance e.g overdrafts, loans etc

25
Q

adv of banks

A

terms and conditions of their financial products are clear

recognised financial institutions

26
Q

dis of banks

A

strict lending criteria-can be hard for start ups and other risky businesses to be approved for finance

27
Q

business angels

A

wealthy individuals who invest into a business where they see potential

usually offer guidance and advice too

28
Q

adv of business angels

A

may have useful contacts and lots of business knowledge

29
Q

dis of business angels

A

difficult and time consuming to find a business angel willing to invest

share of business has to be given up, may mean business angel gains some control of business and its decisions

30
Q

crowd funding

A

raising money via the internet

each person contributes little amount but collectively alot can be raised

business puts details of new idea ut needs money for onto a website

details are made public so anyone can see and contribute with the funding

rewards are often donated such as early access to product ot discounted price upon release

31
Q

adv of crowd funding

A

raises awareness of a product or brand with people using the website
increasing sales

32
Q

dis of crowd funding

A

risk of ideas being copied once idea made public

if business idea fails, lots of people maybe aware, create negative reputation of the business

33
Q

other businesses

A

business with large retained profit may want to invest in another business rather then saving profit

may want to do this if bank interests are low

34
Q

peer to peer lending

A

operate online

allow individuals to lend money to other indiviaudls or businesses

lenders say how much they are willing to lend and indicate what sort of interest rate they want

borrowers say how much money they want to borrow and give some info about why they need the money and how long they want loan for l#

lending company assesses and matches borrowers with appropriate lenders

have lower interst rate then bank loan and attractive option if bank refuses to provide loan

35
Q

short term methods of finance

A

grants
leasing
overdrafts
trade credit
study tip: glot

36
Q

grants

A

fixed sum of money given to business by
Government
usually to fund specific projects

governemnt=grant two GS

37
Q

adv of grants

A

DO NOT NEED TO BE PAID BACK

no interst need to be paid and no share of the business has to be given up

38
Q

leasing

A

paying monthly sums of money in return for the use of an asset
after lease period, asset if returned back to leasing firm

39
Q

dis of grants

A

application process can be time consuming and theres risk of not succesfully getting grant

doesnt get money till end of project so has to find another soyrce of finance in meantime

40
Q

adv of leasing

A

no large up front sum of money to buy asset asset leased often up to date so less liekly to become faulty

usually maintenace and costs are included in lease

41
Q

dis of leasing

A

may become more expensive then just buying asset in first place

more costly in long run then buying asset outright

42
Q

overdrafts

A

banks let business have negative amount of money in bank account

43
Q

adv of overdrafts

A

easy to arrange
flexible

business can borrow as much or little as they need

only pay interest on amount of overdraft they actually use

44
Q

dis of overdrafts

A

charge high rates of interest on them

unsuitable for using in long term

45
Q

trade credit

A

when business buys a good or service and doesnt have to pay it back straight away

business pays back within an agreed time limit

46
Q

adv of trade credit

A

helps business with cash flow

47
Q

dis of trade credit

A

miss out on discounts paying upfront

can charge fee if not payed back within the time

48
Q

long term methods of finance examples

A

loans
share capital
venture capital

49
Q

loans

A

where fixed amount of money is borrowed and payed back within a fixed period of time WITH INTEREST

loans can be such as banks, frinds and family, peer to peer lenders

50
Q

adv of loans

A

good for newer businesses

dont have to pay back loan or interest

wont own any of the bsuiness so dont have to give up shares of the profits

51
Q

dis of loans

A

not good for day to day running costs of business

difficult to arrange as loan provider will only lend money to business if think they are going to get it back

52
Q

page 57-61 still need to be completed

A

business paper 2 (32 decks)

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