Sources Of Finance Flashcards

Question

give disadvantages of crowdfunding a source of finance

Answer 1

Someone could steal your idea from the crowdfunding platform May not reach your crowd funding target as interest in the business may not be there Partial loss of ownership

Answer 2

long term source of finance. It is a sum of money borrowed from the bank that is secured against a property and paid back in instalments, usually over a long period of time I.e. 25 or 30 years.

Answer 3

Large amounts of finance an be acquired and then repaid over a long period of time No loss of ownership or control

Answer 4

Interest charged on amount borrowed Secured against asset that could be seized Not suitable as a short term source of finance

Answer 5

money invested by an individual or group that is willing to take the risk of funding a new business in exchange for an agreed share of the profits. Venture capital is usually used when there is an element of risk with the business.

Answer 6

Finance is made available along with advice and mentoring Finance may be easier to obtain as venture capitalists are usually high risk high reward people

Answer 7

Loss of ownership and control Conflicts may occur over the direction of the business

Answer 8

business selling their outstanding invoices to a third party at a discounted price in order to bypass the hefty waiting times which are associated with invoice payments. This means they receive the money they are owed quickly however it comes at a cost as the get a discounted amount from the debt factoring company.

Answer 9

Immediate cash flow: Debt factoring provides immediate cash to the business, which can help to improve its liquidity and finance its ongoing operations. No debt incurred: does not create additional debt for the business, as the cash is obtained by selling accounts receivable. Improved creditworthiness: can improve the creditworthiness of the business by providing it with immediate cash flow to pay its bills and debts.

Answer 10

may provide limited funding, as the amount of cash that the business can obtain is typically limited to a percentage of the value of the accounts receivable. Reputation risk: can damage the reputation of the business, as customers may view the sale of accounts receivable as a sign of financial distress.

Answer 11

Leasing is a way of renting an asset that the business requires, such as a coffee machine. Monthly payments are made, and the leasing company is responsible for the provision and upkeep of the leased item. Unlike hire purchase the item is not owned at the end of the payments by the business.

Answer 12

agreements are generally flexible, and businesses can negotiate terms such as payment schedules, payments are typically fixed, allowing businesses to budget and forecast more accurately. allows businesses to transfer the risk of owning and maintaining the asset to the lessor, freeing up time and resources for other business activities. requires a lower upfront cost than purchasing the asset outright, allowing businesses to conserve cash and invest it in other areas of the business.

Answer 13

Likely to cost more than buying outright due to interest charges and other fees assets are not owned by the business, so the business has limited control over the asset and may face restrictions on how it can be used.

Answer 14

source of finance allows a business to obtain raw materials and stock but pay for them later. Trade credit must be agreed with a supplier and forms a credit agreement with them.

Answer 15

credit limit - the maximum amount of credit available to the business. credit period - the length of time the business has to pay what is owed, usually 30, 60 or 90 days frequency of payment - how often payment is required, usually monthly method of payment - the way in which the business makes payment retrospective discount - a discount given when the business has purchased a certain amount of stock or raw materials

Answer 16

trade credit does not involve interest charges, making it a cost-effective way for businesses to access short-term financing. can help businesses manage their cash flow by allowing them to defer payment until a later date. Regular use of trade credit can help businesses build strong relationships with their suppliers, which can lead to other benefits such as preferential pricing and faster delivery times.

Answer 17

typically limited in terms of the amount of credit that suppliers are willing to extend to the business Businesses may be limited in their choice of suppliers if they have limited credit history or poor payment track record. if payments are not managed effectively, it can impact the business's cash flow negatively. If the business is unable to make payments on the trade credit, it can damage its relationship with its suppliers and lead to a loss of credit in the future.

Answer 18

A grant is a fixed amount of money usually awarded by the government, EU (European Union) or charitable organisations. Grants are given to a business on the condition that they meet certain criteria such as providing jobs in areas of high unemployment

Answer 19

Being awarded a grant can improve a business's reputation and credibility with customers, suppliers, and investors. Grants can provide funding for research and development, allowing businesses to explore innovative ideas and technologies. grants are non-repayable, and businesses do not have to worry about repaying the funds they receive/ no interest payments

Answer 20

grant application process can be time-consuming and complex, requiring detailed information and supporting documentation. Grants are typically provided for specific projects or activities and cannot be used for general operating expenses. can sometimes alienate customers who may feel uncomfortable dealing with another business or pressured by aggressive lending companies. Grants are highly competitive, and businesses must demonstrate that they meet the criteria for funding.

Answer 21

an extremely important source of finance for a non profit organisation such as a charity or social enterprise. Donations are relied upon for the continual running and day to day upkeep of such organisations. funds given voluntarily by individuals or organisations to support the work of a non-profit or social enterprise.

Answer 22

non-repayable, and non-profit organisations and social enterprises do not have to worry about repaying the funds they receive. can come from members of the community who believe in the mission of the organisation, and can help build support and awarenesorganisationswork. Donations can be used for a variety of purposes, giving non-profits and social enterprises flexibility in how they allocate the funds they receive.

Answer 23

Donors may place restrictions on how their funds can be used, limiting the flexibility of non-profits and social enterprises. Non-profits and social enterprises may need to invest resources into fundraising and donor management to solicit and track donations. Donors may experience "donor fatigue," where they become less willing to donate over time, particularly if they are solicited frequently. uncertain, and non-profits and social enterprises cannot rely on them as a consistent source of funding.

Answer 24

a way for people to lend money to individuals or businesses. The lender lends their money to an organisation or individual. In return the lender receives interest on top of the amount lent out.

Answer 25

provide access to finance to individuals and businesses who may have difficulty obtaining loans from traditional sources. can offer competitive interest rates compared to traditional loans, making it an attractive option for borrowers.

Answer 26

not as tightly regulated as traditional financial institutions, which can create risks for both borrowers and lenders. carries the risk of borrower default, and lenders may not receive the full amount of their investment if a borrower is unable to repay the loan.

Answer 27

invoice discounting is a form of short-term borrowing against your outstanding invoices. It is usually used to help improve a company’s working capital and cash flow position. These companies will lend you up to 95% of the value of the invoices, paying you the money in a matter of days rather than weeks. Once you receive payment from your customers, you pay back the loan

Answer 28

provides immediate cash for a business, improving its cash flow position and allowing it to invest in growth opportunities. can be flexible, allowing a business to access funding as and when it is needed, without having to apply for a loan or line of credit. can be confidential, allowing a business to maintain control over its relationship with its customers and avoid the negative perception associated with traditional debt financing. can improve a business's credit rating by providing it with a more stable cash flow and reducing its reliance on bank loans.

Answer 29

carries the risk of non-payment, as the third party purchasing the invoices may not be able to collect payment from the customers. can reduce the business's relationship with its customers, as the third party purchasing the invoices may have different collection practices and policies than the business itself. can be a complex process, requiring a significant amount of administrative work and documentation. can carry high fees and interest rates, reducing the amount of funding available to the business.