Sources of finance

Question 1

What are the main sources of finance?

Answer 1

External Finance
Internal Finance

Question 2

What are some internal sources of finance?

Answer 2

Owners capital
Retained profit
Working capital
Sale of assets

Question 3

What are some external sources of finance?

Answer 3

Bank loan
Overdraft
Trade of credit
Debt Factoring
Leasing
Hire purchase
Commercial Mortgage
Sale and Leaseback
Share capital
Business Angles/ Venture Capitalists
Government Assistance

Question 4

Pro + con of personal resources

Answer 4

•Owner in control
•Flexible

•Opportunity cost
•Funds at stake
•May be limited

Question 5

Pro + con of Retained profit

Answer 5

•Cheap+highly flexible
•No loss of control

•Need to have started up
•External investors need dividends(share of business)

Question 6

Pro + con of Bank overdraft

Answer 6

•Flexible
•Only when needed

•Expensive

Question 7

Pro + con of bank loan

Answer 7

•No effect of ownership
•Secure finance

•Hard to obtain
•Bank may need proof of security

Question 8

Pro + con of business angel

Answer 8

• Significant knowledge
• Significant income

•Loss of control

Question 9

Pro + con of F&F(Friends and family)

Answer 9

•Flexible
•Not always loss of control

• Loss of control
•Arguments

Question 10

Leasing pro+ con

Answer 10

Business gains productive asset,without ever owning it

Leases easier to obtain than loan
Equipment updated regularly
Maintained by leasing company

Over long period (expensive)
Business never owns item