source of finanace

Question 1

what is retained profit?
pros and cons

INTERNAL

Answer 1

 No good for start-up
 All profits kept for re-investment/ don’t pay out dividends
+ No interest
+ Flexibility on how it’s used
- Is there enough?
- Opportunity cost e.g. shareholder dividends

Question 2

what is owner’s capital?
pros and cons

INTERNAL

Answer 2

 Can be owner own savings or assets used
 A good source for sale trader/partnership
+ No interest
+ Free source
- Could lose personal investment
- Is there enough?

Question 3

what is sales of assets?
pros and cons

INTERNAL

Answer 3

 Selling items that the business already owns; machinery, land, vehicles
+ Raises money AND reduces ongoing costs
+ Improves capital utilisation figure
- Business loses the benefit of the asset

Question 4

define friends and family as an external source
pros and cons

EXTERNAL

Answer 4

 Available to sole traders and partnerships as well as Ltd. Companies by selling shares
 May want a say in the business/ interest on repayment/dividends
+ Low cost
+ Lower risk
+ Greater trust?
+ No credit score required
- Could lose some control of the business/ a share of the profit

Question 5

define banks as an external source
pros and cons

EXTERNAL

Answer 5

 Banks may lend a loan to a business to start up or for growth
 They need collateral; something that can be used to repay the loan if the business fails to pay
it back examples: property, vehicle, personal asset
+ Large amounts can be obtained
- Need to pay interest
- Risk of non-payment; need to provide collateral

Question 6

define peer-to-peer funding as an external source
pros and cons

EXTERNAL

Answer 6

 A fast-growing way for businesses to raise loan finance without having to use the
traditional banking sector
 Raising a loan from a group of individuals or institutions is a very flexible source
of borrowing
 Interest rates are often lower = lower costs
- Can be hard to obtain