Sources of finance Flashcards
What is an internal source of finance?Describe it!
(3 marks)
An internal source of finance is finance that comes from WITHIN a business.It is often limited although ensures you maintain full CONTROL of a business and does not need to pay interest!
What is an external source of finance?
A external source of finance is finance that comes from OUTSIDE the business.
Business’ can raise larger amounts of funds although there are many disadvantages.
What is hire purchase?
When the business uses products while still making payments for them.(temporary ownership)
What are some advantages to hire purchase? (external)
*Improves cash flow
business doesn’t need to pay ALL
money upfront
*Allows business ACCESS to product
What are some disadvantages to hire purchase?
*Payments are likely to amount more than original products worth
*If business’ financial situation changes, and repayments cannot be made, asset LOST!
Give 3 reasons why a bank might reject a loan application from a small business
- Bad trade credit
*May have nothing to put upfront
*Small business may not be able to pay money back
What is a new share issue?
When a business raises finance by selling shares
What are some advantages to a new share issue?
*Large sums can be raised
*No interest
* Money doesn’t have to be repaid to shareholders
What are some disadvantages to a new share issue?
*Possible loss of control of business
(if original owners sell more than 50% of shares)
*Need to satisfy shareholders expectations of dividends and share price growth
