Sources of Finance Flashcards
Why is an overdraft a short term source of finance?
Due to the high daily interest charges.
Is interest usually charged when trade credit is given?
No.
True or false - cars are often financed through hire purchase.
True.
True or false - when leasing, you never own the item.
True - it is given back at the end of the agreement period.
True or false - a business can only use one source of finance for a new project.
False - they may use a combination of a few sources.
True or false - the lease company remain responsible for repairs.
True.
State 3 methods of internal finance.
Cash in the bank. Retained profit. Selling assets.
Define retained profit.
Profit made by the business but kept back for its own use. Not paid to owners/shareholders.
Which source of finance are sole traders and partnerships not able to use?
Share issue.
Define interest.
An amount of money that must be paid back in addition to the amount borrowed.
Describe the difference between internal and external finance.
Internal comes from within the business, whereas external comes from outside of the business.
True or false - Sale of assets has no disadvantages.
False - if demand increases the assets may have to be bought again at full price.
List two advantages of internal finance.
Normally no cost to the business. Quick to organise.
Define security.
Something of value which is offered to the lender as a form of guarantee of payment.
Does a grant have to be repaid?
No, not usually.
