Sources of finance

Question 1

What are sources of finance?

Answer 1

Sources of finance refer to the various options available to acquire additional funds.

Question 2

Capital

Answer 2

The owner invests their own money into the business.
Its Long term and internal

Question 3

Advantages of Capital

Answer 3

• No Debts
• No interest

Question 4

What are the disadvantages of capital

Answer 4

Limited funds

Question 5

Business Angel/Silent Partner

Answer 5

An individual who invests money in exchange for shares but isn’t involved in the business.
(Long-term/ External)

Question 6

What are the disadvantages of a business angle

Answer 6

• Shared profit
• Potential disagreements

Question 7

What are the advantages of a business angle?

Answer 7

• More funds available
• Makes all the decisions

Question 8

Loan from a Family or Friend

Answer 8

Borrowing/Loaning money from a family member, friend, or colleague
(Negotiable time length/ can be internal or external)

Question 9

What are the advantages of a Loan from a friend/family

Answer 9

• No fixed return period
• Long term

Question 10

What are the disadventages of a Loan from a friend/ family

Answer 10

• Potential disagreements or sudden withdrawal
• Limited money

Question 11

Finance lease

Answer 11

A lease is an agreement to rent an item for a fixed number of periods. The business has the right to purchase the item at the end of a lease agreement.
Operating lease: The item must be returned to the financier at the end of the lease agreement
(short-term/External

Question 12

What are the advantages of a Finance lease?

Answer 12

No upfront cost

Question 13

What are the disadvantges of a finance lease

Answer 13

Possibly overpaying

Question 14

Credit Card

Answer 14

Use to purchase an item (short-term/External)

Question 15

What are theadvantages of a credit card

Answer 15

Easy access & use

Question 16

What are the disadvantages of a credit card

Answer 16

• Playback quickly
• expensive
• High-interest rates

Question 17

Bank Overdraft

Answer 17

A loan made by a bank in order for customers to withdraw more money than his/her amount of money deposited in the bank account (short-term/ External)

Question 18

What are the advantgaes of a Bank overdraft

Answer 18

• More money
• Simple use

Question 19

What are the disadvantages of a bank overdraft

Answer 19

• Limited amount
• High-interest rates

Question 20

Term Loan

Answer 20

Source of finance obtained from a bank over a long period of time
(long term/Eternal)

Question 21

What are the advantages of a term loan

Answer 21

• No alterations to the agreement
• Larger amounts of money withdrawn
• Lower interest rates
• Longer period to pay off the loan

Question 22

What are the disadvntgaes of a Tem loan

Answer 22

• Interest repayments
• Long and challenging process

Question 23

Equipment Financing

Answer 23

A loan, or lease that is used to obtain business equipment
(Long-term External)

Question 24

Whate are the advantages of an Equipment financing

Answer 24

• Preservation of capital
• Spread the cost over time
• Tax advantages
• Fixed interest rates
• Asset as collateral

Question 25

Whatr are the disadvantgaes of an equipment financing?

Answer 25

• Total cost of financing
• Ownership cost
• Restrictions on use
• Default risk