Sources of finance

Question 1

WHY FIND SOURCES OF FINANCE

Answer 1

• Help liquidity problems

- raise larger sums of money for capital expenditure

Question 2

DEBT FACTORING (adv and dis)

Answer 2

If owed money by costumer but cant afford to wait you can sell that debt onto a debt factoring company

ADV
-allows business to receive an amount of cash when they need it, in order to solve their own liquidity
DIS
- missing out on full value of payment

Question 3

OVERDRAFT (adv and dis)

Answer 3

Allows businesses to spend even when they have ran out of money

ADV
- allows businesses to continue purchasing the assets that they need for their organisation, even without any owned finance
DIS
-Have to pay a fee every month you use overdraft

Question 4

RETAINED PROFIT (adv and dis)

Answer 4

Keeping profit instead of sharing to shareholders, for growth and development for the firm

ADV
- don’t have to pay any interest on the money (internal finance, so doesn’t require paying anyone back)
DIS
- money that you are talking away from shareholders (short term shareholders might sell their shares and invest elsewhere)

Question 5

SHARE CAPITAL (adv and dis)

Answer 5

Bringing new owners into the organisation in return for a percentage share of business ownership

ADV
- brings in large sums of money (people prepared to pay big for a share)
- Shareholders that join may bring in industry knowledge and expertise
DIS
- Giving away control of organisation

Question 6

BANK LOANS ( adv and dis)

Answer 6

Given a sum of money that must be repaid along with interest

ADV
- raise high sum of money
- can structure repayments
DIS
- have to pay back with interest on top

Question 7

VENTURE CAPITAL (adv and dis)

Answer 7

Involving entrepreneurs and inviting them to invest in your organisation

• might invest in return for some ownership
• Lend organisation money

ADV
- If they have ownership of organisation, they can bring in expertise and knowledge
- gain money from entrepreneurs
DIS
- pay entrepreneurs dividens