2.1.2

Question 1

what is external finance

Answer 1

capital raised from outside of the business

Question 2

examples of sources of finance

Answer 2

• banks
• peer to peer funding (p2p)
• business angels
• crowdfunding
• other business

Question 3

examples of methods of finance

Answer 3

-loans
-share capital
-venture capital
-overdrafts
-leasing
-trade credit
-grants
-

Question 4

3 advantages of loans

Answer 4

• quick and easy to measure
• improved cashflow
• fixed interest rates allow firms to budget

Question 5

3 disadvantages of loans

Answer 5

• more expensive than other forms of finance
• can be charged a penalty for early payment
• a firm normally provides security known as collateral

Question 6

3 disadvantages of loans

Answer 6

• more expensive
• can be charged a penalty for early payment
• collateral

Question 7

3 advantages of share capital

Answer 7

• no interest repayments
• possible to raise large amounts of finance
• only need to pay dividends if profits being made and the amount of dividents is not fixed.

Question 8

3 disadvantages of share capital

Answer 8

• loss of ownership as shareholders are part owner
• loss of control over plc whith a threat of takeovers
• comlex and costly to issue shares,especially for a plc

Question 9

what is venture capital

Answer 9

investment from an established business into another business in return for a percentage equity in the business

Question 10

3 advantages of venture capital

Answer 10

• expertise to help the business
• potential large sums of money for investment
• makes it easier to attract other sources of finance

Question 11

3 disadvantages of venture capital

Answer 11

• a long and complex process
• partial loss of ownership
• Risk of conflict or perceived interference

Question 12

3 advantages of overdraft

Answer 12

• only pay for the money borrowed
• quick and easy to arrange
• no charges for paying off the overdraft

Question 13

3 disadvantages of overdraft

Answer 13

• the bank can call it in at anytime
• only available from a current bank account
• banks may secure the overdraft against the business assets

Question 14

what is leasing

Answer 14

leasing allows a business to benefit from the use of an asset without owning it or buying it outright

Question 15

what is trade credit

Answer 15

paying suppliers a period of time after the goods or services have been recieved

Question 16

what is grants

Answer 16

grants are fixed amounts of capital provided to business by the government or other organisations to fund specific projects