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National 5 Business Management > Unit 3 - Finance - Sources of Finances > Flashcards

Unit 3 - Finance - Sources of Finances Flashcards

1
Q

What is a bank overdraft?

A

A bank overdraft is when a business takes out more money than it has in its bank account.

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2
Q

What are the advantages of a bank overdraft?

A
  • Allows a business to take out more than it has in its bank account
  • Useful for addressing short-term cash flow issues
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3
Q

What are the disadvantages of a bank overdraft?

A
  • Daily interest or daily charges may apply
  • Not useful for addressing long-term cash flow problems
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4
Q

What is a bank loan?

A

A bank loan is when a business borrows money from a bank and repays it over a specified period of time in regular installments with interest.

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5
Q

What are the advantages of a bank loan?

A
  • Easier to budget with regular repayments
  • Can be taken out over a long period of time
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6
Q

What are the disadvantages of a bank loan?

A
  • Interest can be expensive, making monthly repayments costly
  • Can affect credit ratings if repayments are missed
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7
Q

What is a government grant?

A

A government grant is money given to a business by the government that does not have to be repaid.

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8
Q

What are the advantages of a government grant?

A
  • Does not need to be repaid
  • Can generate good publicity for the business
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9
Q

What are the disadvantages of a government grant?

A
  • Usually a one-off payment
  • May come with strict conditions (e.g., location or employee requirements)
  • Can be time-consuming due to extensive paperwork
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10
Q

What is hire purchase?

A

Hire purchase is paying for an item with regular installments, usually with an initial deposit required.

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11
Q

What are the advantages of hire purchase?

A
  • Easier to budget with regular payments
  • Can be taken out over a medium/long-term
  • The business owns the item after the final payment
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12
Q

What are the disadvantages of hire purchase?

A
  • Interest is charged on top of regular repayments
  • The item is not owned until the final payment is made
  • Risk of repossession if repayments are not made
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13
Q

What is leasing?

A

Leasing is when a business rents an item, such as IT equipment or vehicles, for a set period.

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14
Q

What are the advantages of leasing?

A
  • Easier to budget with regular payments
  • Items can be upgraded at the end of the lease period
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15
Q

What are the disadvantages of leasing?

A
  • The business does not own the leased item
  • Can be more expensive than hire purchase or a bank loan
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16
Q

What is a mortgage?

A

A mortgage is a long-term loan used to buy property or land, usually repaid over 20-25 years.

17
Q

What are the advantages of a mortgage?

A
  • Long repayment period
  • Easier to budget over time
18
Q

What are the disadvantages of a mortgage?

A
  • Risk of repossession if repayments are missed
  • Interest must be paid in addition to the loan amount
19
Q

What is a loan from family/friends?

A

A business borrows money from a family member or friend, often with no interest.

20
Q

What are the advantages of a loan from family/friends?

A
  • No interest required
  • Can be an option if the business is denied a bank loan
21
Q

What are the disadvantages of a loan from family/friends?

A
  • Can lead to personal disagreements
22
Q

What is a share issue?

A

Selling shares to existing or new shareholders; only available to private limited companies (Ltd).

23
Q

What are the advantages of a share issue?

A
  • Can raise a large amount of capital
24
Q

What are the disadvantages of a share issue?

A
  • Expensive to issue new shares
  • Private companies can only have a maximum of 50 shareholders
25
Q

What are personal savings in business finance?

A

Money invested by a sole trader or partner from their own bank account into their business.

26
Q

What are the advantages of using personal savings?

A
  • Does not need to be repaid
27
Q

What are the disadvantages of using personal savings?

A
  • Limited amount of money available
  • Once spent, it cannot be used again
28
Q

What is trade credit?

A

A supplier allows a business to receive goods and delay payment for a set period.

29
Q

What are the advantages of trade credit?

A
  • Helps cash flow by allowing goods to be sold before payment is due
30
Q

What are the disadvantages of trade credit?

A
  • Not always available to new businesses
  • Late payments can result in penalties
31
Q

What is debt factoring?

A

A business sells its unpaid invoices (debts) to a factor that specializes in recovering them.

32
Q

What are the advantages of debt factoring?

A
  • Helps improve cash flow by getting immediate funds
33
Q

What are the disadvantages of debt factoring?

A
  • The business receives less money than the actual debt value

National 5 Business Management (12 decks)

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