Sources of finance

Question 1

How can finance dept help improve business success

Answer 1

• provide accurate financial
• make good decisions
• monitor performance
• control costs
• forecast trends

Question 2

what will the source of finance depend on

Answer 2

• finance available
• how long it is for
• purpose

Question 3

what is bank overdraft

Answer 3

used for short term cash flow difficulties when more money is taken from an account that is in it

Question 4

what are the advantages of bank overdraft

Answer 4

• interest paid only on amount borrowed

- agreed limit can be pre-arranged so it is available when needed

Question 5

what are the disadvantages of bank overdraft

Answer 5

• extra charges applied

- higher charges if unauthorised

Question 6

what is trade credit

Answer 6

buy now pay later

Question 7

what are the advantages of trade credit

Answer 7

• can sell goods before having to pay supplier

- prevents cash flow problems

Question 8

what are the disadvantages of trade credit

Answer 8

• cash discount lost

- poor reputation if late payment

Question 9

what is a grant

Answer 9

money given to a business from government

Question 10

what’s the advantages of a grant

Answer 10

• don’t have to pay back

- no loss of business control

Question 11

what are the disadvantages of a grant

Answer 11

• time consuming to apply

- conditions apply so only for certain projects

Question 12

what is a bank loan

Answer 12

borrowing money over a specific time, repaying in fixed instalments with added interest

Question 13

what are the advantages of a bank loan

Answer 13

• no need to save up as once it is approved the money is available
• sizeable amount can be approved

Question 14

what are the disadvantages of bank loan

Answer 14

• interest payable so increase cost

- inflexible

Question 15

what is commercial mortgage

Answer 15

loan from bank or building society to buy a land or property

Question 16

what is the advantages of commercial mortgage

Answer 16

• large amounts allowing things to be afforded

- pay back over years

Question 17

what are the disadvantages of commercial mortgage

Answer 17

• variable interest rates so costs may rise

- property can be repossessed if payments aren’t made

Question 18

what is debt factoring

Answer 18

unpaid customer invoices to a debt factor to chase up for a small price

Question 19

what are the advantages of debt factoring

Answer 19

• improves cash flow as the cash is received immediately

- saves time and money as nothing is needed to be chased up

Question 20

what are the disadvantages of debt factoring

Answer 20

• business doesn’t receive full amount, loss of income

- factor is only interested in large values

Question 21

what is retained profit

Answer 21

profits made previously which is kept for reinvestment

Question 22

what are the advantages of retained profits

Answer 22

• no additional costs or interest

- instantly available

Question 23

what are the disadvantages of retained profit

Answer 23

• takes time to save up so it’s difficult to find large growth quick
• no guarantee that profits will be made

Question 24

what is selling assets

Answer 24

selling off unwanted assets to raise finance

Question 25

what is leasing

Answer 25

paying a fee to ‘rent’ something from a company

Question 26

what are advantages of leasing

Answer 26

- no need to buy expensive things | - don’t pay repairs

Question 27

what are the disadvantages of leasing

Answer 27

- business never owns assets | - may be more expensive than buying over time

Question 28

what is hire purchasing

Answer 28

paying the cost of equipment in regular instalments

Question 29

what are the advantages of hire purchasing

Answer 29

- cost is spread over time making it more affordable | - becomes an asset and eventually owned

Question 30

what are the disadvantages of hire purchasing

Answer 30

- finance company owns asset till payment | - interest can be expensive

Question 31

what is crowd funding

Answer 31

appeal for funding from the public

Question 32

what are advantages of crowd funding

Answer 32

- raises funds quite quickly | - can raise awareness of new business

Question 33

what are the disadvantages of crowd funding

Answer 33

- if target isn’t reached money often needs returned | - may not be accepted into crowd funding platform

Question 34

what is new equity

Answer 34

limited company sell new shares to investors for part of the ownership of the business

Question 35

what are the advantages of new equity share issue

Answer 35

- large sums can be raised by selling shares | - no need to repay as the share is sold onto third party

Question 36

what are the disadvantages of new equity share

Answer 36

- takes time and costs to arrange sale | - limit to number of shares that can be issued

Question 37

what is debentures

Answer 37

loans from individuals or companies to PLCs with a fixed interest rate and repayment date

Question 38

what are the advantages of debentures

Answer 38

- large amounts can be raised | - easier to plan for as fixed interest rate and long term

Question 39

what are the disadvantages of debentures

Answer 39

- interest must be paid even if a loss is made | - assists have to be sold to repay loan

Question 40

what is venture capital

Answer 40

investor provides finance to riskier ventures

Question 41

what are advantages of a venture capital

Answer 41

- allows business plans to be put into operation | - may be willing to lend even if a bank has refused a loan

Question 42

what are disadvantages of a venture capital

Answer 42

- often only interest in large amounts | - part ownership may need to be agreed so there’s a loss of control

Question 43

what are the different sources of finance

Answer 43

``` bank overdraft trade credit grant bank loan commercial mortgage ```

Question 44

what are the sources of finance needed to be known at higher

Answer 44

``` dept factoring retained profit selling assets leasing hire purchase crowd funding new equity share issue debentures venture capital ```