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Management of Finance > Sources of finance > Flashcards

Sources of finance Flashcards

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1
Q

How can finance dept help improve business success

A
  • provide accurate financial
  • make good decisions
  • monitor performance
  • control costs
  • forecast trends
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2
Q

what will the source of finance depend on

A
  • finance available
  • how long it is for
  • purpose
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3
Q

what is bank overdraft

A

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

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4
Q

what are the advantages of bank overdraft

A
  • interest paid only on amount borrowed

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

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5
Q

what are the disadvantages of bank overdraft

A
  • extra charges applied

- higher charges if unauthorised

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6
Q

what is trade credit

A

buy now pay later

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7
Q

what are the advantages of trade credit

A
  • can sell goods before having to pay supplier

- prevents cash flow problems

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8
Q

what are the disadvantages of trade credit

A
  • cash discount lost

- poor reputation if late payment

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9
Q

what is a grant

A

money given to a business from government

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10
Q

what’s the advantages of a grant

A
  • don’t have to pay back

- no loss of business control

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11
Q

what are the disadvantages of a grant

A
  • time consuming to apply

- conditions apply so only for certain projects

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12
Q

what is a bank loan

A

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

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13
Q

what are the advantages of a bank loan

A
  • no need to save up as once it is approved the money is available
  • sizeable amount can be approved
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14
Q

what are the disadvantages of bank loan

A
  • interest payable so increase cost

- inflexible

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15
Q

what is commercial mortgage

A

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

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16
Q

what is the advantages of commercial mortgage

A
  • large amounts allowing things to be afforded

- pay back over years

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17
Q

what are the disadvantages of commercial mortgage

A
  • variable interest rates so costs may rise

- property can be repossessed if payments aren’t made

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18
Q

what is debt factoring

A

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

19
Q

what are the advantages of debt factoring

A
  • improves cash flow as the cash is received immediately

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

20
Q

what are the disadvantages of debt factoring

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

- factor is only interested in large values

21
Q

what is retained profit

A

profits made previously which is kept for reinvestment

22
Q

what are the advantages of retained profits

A
  • no additional costs or interest

- instantly available

23
Q

what are the disadvantages of retained profit

A
  • takes time to save up so it’s difficult to find large growth quick
  • no guarantee that profits will be made
24
Q

what is selling assets

A

selling off unwanted assets to raise finance

25
Q

what is leasing

A

paying a fee to ‘rent’ something from a company

26
Q

what are advantages of leasing

A
  • no need to buy expensive things

- don’t pay repairs

27
Q

what are the disadvantages of leasing

A
  • business never owns assets

- may be more expensive than buying over time

28
Q

what is hire purchasing

A

paying the cost of equipment in regular instalments

29
Q

what are the advantages of hire purchasing

A
  • cost is spread over time making it more affordable

- becomes an asset and eventually owned

30
Q

what are the disadvantages of hire purchasing

A
  • finance company owns asset till payment

- interest can be expensive

31
Q

what is crowd funding

A

appeal for funding from the public

32
Q

what are advantages of crowd funding

A
  • raises funds quite quickly

- can raise awareness of new business

33
Q

what are the disadvantages of crowd funding

A
  • if target isn’t reached money often needs returned

- may not be accepted into crowd funding platform

34
Q

what is new equity

A

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

35
Q

what are the advantages of new equity share issue

A
  • large sums can be raised by selling shares

- no need to repay as the share is sold onto third party

36
Q

what are the disadvantages of new equity share

A
  • takes time and costs to arrange sale

- limit to number of shares that can be issued

37
Q

what is debentures

A

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

38
Q

what are the advantages of debentures

A
  • large amounts can be raised

- easier to plan for as fixed interest rate and long term

39
Q

what are the disadvantages of debentures

A
  • interest must be paid even if a loss is made

- assists have to be sold to repay loan

40
Q

what is venture capital

A

investor provides finance to riskier ventures

41
Q

what are advantages of a venture capital

A
  • allows business plans to be put into operation

- may be willing to lend even if a bank has refused a loan

42
Q

what are disadvantages of a venture capital

A
  • often only interest in large amounts

- part ownership may need to be agreed so there’s a loss of control

43
Q

what are the different sources of finance

A 
bank overdraft
trade credit
grant
bank loan
commercial mortgage
44
Q

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

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

Management of Finance (8 decks)

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