Sources of Finance

Question 1

Main sources of finance are

Answer 1

debt factoring
overdrafts
retained profits
share capital
loans
venture capital.

Question 2

Bank Overdrafts are

Answer 2

An agreement with the bank where businesses can make payments from their bank account exceeding the available cash balance.

Question 3

Advantages of overdraft

Answer 3

• Quick and easy to access->immediately available as agreed
• Doesn’t give up business control (other methods may)
• can be bespoke to the needs of the business(i.e seasonal business)

Question 4

Disadvantages of overdraft

Answer 4

-High interest compared to loans-could struggle with repayments>not long term
-persistent use of overdraft should there be struggle repaying can damage your credit rating
-

Question 5

debt factoring is

Answer 5

The process of selling the debts owed to a business to a financial institution.EXTERNAL

Question 6

Advantages of debt factoring

Answer 6

-Receivables (amounts owed by customers) are turned into cash quickly!>helps get money where needed asap
Business can focus on selling rather than collecting debts
-The facility is practically limitless and therefore suits a fast-growing business.
-There is no security required – unlike a loan or overdraft.

Question 7

Venture capital is

Answer 7

Venture capital
Investment from an established business into another business in return for percentage equity in the business.
Venture capital provides long-term, committed share capital, to help unquoted companies grow and succee

Question 8

Advantages of venture capital

Question 9

Share capital advantages

Answer 9

• does not have to be repaid and no interest is applied

- a business can choose to whom it offers shares

Question 10

Disadvantages of venture capital

Answer 10

> Loss of some ownership over business
Funding Problems -Because venture capitalists often move large sums of money, the capital exchange can take time and business owners must consider it and work around delays. Additionally, they may require certain milestones to be met before releasing funding. For example, an investor may want to see consistent monthly sales before allowing access to the agreed upon funds.

Question 11

disadvantages of using share capital

Answer 11

profits made by the business are paid to shareholders (these payments are also known as dividends), so control of the business gets diluted