Sources of finance

Question 1

Owners equity

Answer 1

Money Available to put into business
+ Does not have to be repaid.
- Risky as owners my lose their savings.
Best for starting a small business.

Question 2

Retained profit

Answer 2

Money left over after all deductions and tax has been removed.
+ Does not have to be repaid
- Can be limited and has an opportunity cost
Best for expansion of the business.

Question 3

Sales of assets

Answer 3

Selling of anything of value within a business to generate money.
+ Does not have to be repaid
- Assets may have been useful in the future
Best for raising money quickly.

Question 4

Trade Credit

Answer 4

Buying goods and services without an immediate cash or cheque payment.
+ No interest
- Limited amount and leaving too long can mean you lose your credit.
Best for Short term cash flow problems.

Question 5

Overdraft

Answer 5

Borrowing more money than you have.
+ Flexible as interest is only paid for what you borrowed for as long as needed
- Interest rated usually higher than for loans
Best for short term Cash flow Problems.

Question 6

Leasing

Answer 6

Paying to use an asset without owning it.
+Lower outlay on equipment and maintenance often included.
- More expensive than buying outright in the long term.
Best for items such as vehicles or other medium term needs.

Question 7

Loans

Answer 7

Borrowing a sum of money or asset.
+ Easy to plan for fixed repayments
- Interest paid, regular payments must be made regardless of cash flow
Best for medium term finance and expansion.

Question 8

Venture Capital

Answer 8

Putting money into a smaller business in return for a part ownership.
+ Immediate Cash injection without repayment
- Loss of control for the owner
Best for business deemed too risky by banks.

Question 9

Share Capital

Answer 9

Money invested into a business represented as shares.
+ Immediate cash injection without needing repayment.
- Loss of ownership of the company.
Best for long term or large expansions.

Question 10

Online collaborative funding

Answer 10

Firms set a target to raise money and people can invest via the internet.
+ Access to share capital or unsecured loans without past credit rating.
- May take time to arrange and may not raise enough.
Innovative Start-ups and technology developments