Unit 3 - Internal and External Sources of Finance

Question 1

Personal savings

Answer 1

• Internal source of finance
• owner’s personal investment

Question 2

Retained profits

Answer 2

• Internal source of finance
• Source of finance based on money a business keeps back after paying shareholders a dividend and giving owners their share of the profit.

Question 3

Sales of Assets

Answer 3

• Internal source of finance
• Selling off old, obselete assets that are no longer used by the business

Question 4

External sources of finance

Answer 4

Sources of money from outside of a business

Question 5

Bank overdraft

Answer 5

• External source of finance
• Short term source
• Customers can withdraw their accounts to a greater value than the balance in the account

Question 6

Trade credit

Answer 6

• External source of finance
• Short term source
• When a business orders and receives supplies, but pays for them at a later date

Question 7

Hire purchase

Answer 7

• External source of finance
• Medium term source
• Involves purchasing an asset paying it for over a period of time

Question 8

Leasing

Answer 8

• External source of finance
• Medium term source
• Involves using an asset, but the ownership doesn’t pass to the user

Question 9

Long term bank loan

Answer 9

• External source
• Long tern source
• Borrowing from the bank for a limited period of time

Question 10

Issue of share

Answer 10

• External source
• Long term source
• When a company raises finance through selling hares to new or existing customers

Question 11

Debenture

Answer 11

• External source
• Long term source
• A type of bond or other debt instrument that is unsecured by collateral

Question 12

Venture capital

Answer 12

• External source
• Short term source
• A source of finance normally for small businesses with good growth prospects, where the venture capitalist normally takes a stake in a business

Question 13

Crowd funding

Answer 13

• Generally an external source
• Short term source
• Finance raised through internet interests from a larger number of small investors