Sources of finance

Question 1

What is finance?

Question 2

What are the two types of sources of finance?

Answer 2

1) Internal sources of finance.

2) External sources of finance.

Question 3

What is an internal source of finance?

Answer 3

Sources of finance provided from within the business, or by business’s owners.

Question 4

What is an external source of finance?

Answer 4

Sources of finance which are provided by people or organisations outside of the business.

Question 5

What are the internal sources of finance?

Answer 5

1) Retained profit.

2) selling unwanted assets.

Question 6

What are the external sources of finance?

Answer 6

1) Family and friends.

2) A new share issue.

3) Obtaining a low or mortgage.

4) Overdrafts.

5) Trade credit.

6) Hire purchase.

7) Government grants.

Question 7

Benefits of debt finance (e.g. loans/ mortgages)

Answer 7

1) Ownership of business is not compromised.

2) Often provided for specific circumstances.

3) Repayments arranged in advanced.

Question 8

Benefits of equity finance (selling shares).

Answer 8

1) Does not need to be paid back.

2) Gain expertise.

Question 9

Disadvantages of debt finance.

Answer 9

1) Debt must be repaid with interest.

Question 10

Disadvantages of equity finance.

Answer 10

1) May dilute power of current owners.