Sources Of Finance (GCSE) Flashcards
What is hire purchase
Hiring cars, equipment etc. they do not become property of the user until a final payment is made (bloom payment)
What is trade credit
Paying for stock after a period of time (usually 30 days) giving time for it to sell first
What is a grant
Money from the government which is given to a business for specific purpose. E.g cost of training employees
What is share issue
A source of finance used only by Plc or ltds. Finance is raised in return for a share in the business
Advantages of a grant
Interest free
No need to repay
Doesn’t raise debt for business
Disadvantages of a grant
Has to be used for specific purpose
May not get the full amount required
Advantages of a lease
No need for deposit
Product is readily available
Maintenance may be covered in lease
Disadvantages of a lease
No ownership
Expensive
Cannot be used to raise finance in future
Advantages of retained profit
No interest
Nothing has to be repayed
No cost to raise the finance
Disadvantages of retained profit
Opportunity cost
Only available to business that make enough profit
Advantages of a loan
Repayment can be spread over time
Business knows how much they owe which helps budgeting and cash flow
Disadvantages of loan
Interest
Business may need to risk am asset as security
Advantages of cash in bank
No interest
Readily available
No debt risk
Disadvantages of cash in bank
Only available if there is cash in bank
Opportunity cost
Money can’t be used for rainy days
