sources of finance

Question 1

5 types of finance:

Answer 1

retained profit, bank overdraft, bank loan, mortgage, government grants

Question 2

what is retained profit and explain

Answer 2

• this is keeping profits from that year to be used in the next year to expand eg re-invest in other areas of the business
• you won’t get into debt meaning it gives you the advantage of buying other goods

Question 3

what is a bank over draft and explain

Answer 3

• this is a short term facility that will allow you to withdraw more money from your account than is available
• helps you solve cash flow probelms

Question 4

what is government grants and explain

Answer 4

• this is a fixed amount of money usually awarded by the government when they meet criteria eg providing jobs in areas of high unemployment
• justification is you do not need to be repaid so no debt

Question 5

what is a bank loan and explain

Answer 5

• fixed amount of money that is given to a business by the bank and has to be repaid over time with added interest and usually paid in monthly instalments
• repayments are regular and fixed amounts so budgeting is made easier

Question 6

what is a mortgage and explain

Answer 6

• this is a sum of money borrowed from the bank that is paid back in instalments usually over a long period of time
• repayments are regular and fixed so budgeting is made easier