Topic 5.3 - Sources of finance Flashcards
1
Q
Debt factoring
A
Way of raising cash by selling their sales invoices to a third party at a discount
- short term
2
Q
Benefits of debt factoring
A
- receivables turned quickly to cash
- business can focus on selling not collecting
3
Q
Drawbacks of debt factoring
A
- quite a high cost
- customers may feel their relationship with the business has changed
4
Q
Overdraft
A
Allows bank balance to go below 0
- short term
5
Q
Benefits of bank overdraft
A
- easy to arrange
- flexible
- interest only paid on amount borrowed
6
Q
Drawbacks of overdraft
A
- cash can be withdrawn at short notice
- interest charges varies
- higher interest rate
7
Q
Bank loan
A
Where a bank lends a certain amount of money
- medium term
8
Q
Advantages of bank loans
A
- greater certainty of funding
- lower interest rates than overdraft
- finances fixed assets
9
Q
Drawbacks of bank loan
A
- requires security
- interest paid on full amount
- harder to arrange
- start-ups and small business excluded
10
Q
Retained profit
A
Profit that has been reinvested into the business
- long term
11
Q
Drawbacks of bank loan
A
- requires security
- interest paid on full amount
- harder to arrange
- start-ups and small business excluded
12
Q
Benefits of retained profit
A
- flexibility
- business owners in control
- low cost
- can be substantial
13
Q
Drawback of retained profit
A
- drain on finance if loss making
- danger of hoarding profits
- opportunity cost for shareholders
14
Q
Share capital
A
Finance raised from shares sold
- long term
15
Q
Benefits of share capital
A
- doesn’t need to be paid back
- no interest
- can bring new ideas
