Sources of Finance

Question 1

Owners Capital

Answer 1

INTERNAL - SHORT TERM –> Money the owner invests into the business, often personal savings. Doesn’t need to be paid back. Often Sole Traders & Partnerships.

Question 2

Sale of Assets

Answer 2

INTERNAL - SHORT TERM –> Useful if there are spare assets. No interest - a cheap source of finance. No longer own asset. Can take a long time to sell and get cash.

Question 3

Retained Profit

Answer 3

INTERNAL - SHORT-TERM –> Need to make a profit. No interest. Shareholders may disagree as they want the profit as dividends. Can miss out on investment opportunities.

Question 4

Bank Overdraft

Answer 4

EXTERNAL - SHORT-TERM –> Something is withdrawn in excess of the account. Immediate access. Charged if the limit is exceeded.

Question 5

Trade Credit

Answer 5

EXTERNAL - SHORT-TERM –> Buying goods and not paying instantly. Helps cash flow.

Question 6

Venture Capital

Answer 6

EXTERNAL - LONG-TERM –> Funds a business with high growth potential. Often more than £1,000,000. Give up a share of the business.

Question 7

Crowd Funding

Answer 7

EXTERNAL - LONG-TERM –> Large number of investors provide a small loan or capital share each.

Question 8

Share Capital

Answer 8

EXTERNAL - LONG-TERM –> PLC’s & LTD’s. No repayments. Profits shared. Don’t own all the business.

Question 9

Bank Loans

Answer 9

EXTERNAL - LONG-TERM –> Fixed amount of money paid back with interest. Easy. Not flexible.

Question 10

Leasing

Answer 10

EXTERNAL - SHORT-TERM –> Paying to use another firm’s asset. No up front payment - predictable cash flow. More expensive in the long-term.