Learning Objective D

Question 1

What are the Internal Sources of Finance

Answer 1

Retained Profit
Net Current Assets
Sale of assets

Question 2

What are the external sources of finance?

Answer 2

Owners Capital
Loans
Crowd-Funding
Mortgages
Venture Capital
Debt Factoring
Hire Purchase
Leasing
Trade Credit
Government Grants
Donations
Peer to Peer lending
Invoice Discounting

Question 3

What is Retained Profit

Answer 3

Funds that the company reinvests into the business

Question 4

What are the Advantages of Retained Profit?

Answer 4

No interest has to be paid

Question 5

What are the disadvantages of retained profit

Answer 5

Needs to be an established business to have returned profit
Shareholders can cash out at any time

Question 6

What is Net Current Assets

Answer 6

The difference between current assets and current liability

Question 7

Advantages of Net Current Assets

Answer 7

There will be no interest that has to be paid

Question 8

Disadvantages of net current assets

Answer 8

Lots of admin to get customers to pay quickly and to pay suppliers late
May have to offer discounts so customers pay openly

Question 9

What is sale of assets

Answer 9

Selling items that the business owns

Question 10

Advantages of sale of assets

Answer 10

There will be no interest that has to be paid
Can receive cash very fast

Question 11

Disadvantages of sale of assets

Answer 11

May not sell for as much as it is worth
Selling or leasing back can be more expensive

Question 12

What is owners capital

Answer 12

The owners money

Question 13

Advantages of owners capital

Answer 13

High profit potential –> no interest payments
Gives more flexibility

Question 14

Disadvantages of owners capital

Answer 14

High personal risk for owner
May not have assets to sell

Question 15

What’s a loan

Answer 15

Borrowing money

Question 16

advantages of a loan

Answer 16

high profit potential –> no interest payments
give more flexibility

Question 17

disadvantages of loans

Answer 17

high interest rate
expensive

Question 18

what is crowd funding

Answer 18

asking lots of people to give small amount

Question 19

advantages of crowdfunding

Answer 19

fast way to raise a large sum of money
lower risk

Question 20

disadvantages of crowdfunding

Answer 20

investors expect high returns
lots of small amounts

Question 21

what is a mortgage

Answer 21

loan used to purchase

Question 22

advantages of mortgages

Answer 22

loan is secured against property
lower risk

Question 23

disadvantages of mortgages

Answer 23

tied to the property
has risk of repossession

Question 24

what is venture capital

Answer 24

there will be investments from individuals or companies in exchange for

Question 25

advantages of venture capital

Answer 25

can have access to the business expertise and networks

Question 26

disadvantages of venture capital

Answer 26

must give up the shares of the company such as company and general control

Question 27

what is debt factoring

Answer 27

sell invoices at a discount for rapid cash flow

Question 28

advantages of debt factoring

Answer 28

immediate cash

Question 29

disadvantages of debt factoring

Answer 29

reduced amount in invoices

Question 30

what is hire purchase

Answer 30

paying for goods overtime

Question 31

advantages of hire purchase

Answer 31

spreads cost overtime

Question 32

disadvantages of hire purchase

Answer 32

still have to pay

Question 33

what is leasing

Answer 33

renting goods/equipment

Question 34

advantages of leasing

Answer 34

can use better equipment without paying for it

Question 35

disadvantages of leasing

Answer 35

very expensive

Question 36

what is trade credit

Answer 36

buy goods now and then pay at later date

Question 37

advantages of trade credit

Answer 37

can manage short term payments

Question 38

disadvantages of trade credit

Answer 38

still have to pay

Question 39

what is government grants

Answer 39

money given voluntarily to support a business or cause

Question 40

advantages of government grant

Answer 40

free money - no repayment required

Question 41

disadvantages of government grants

Answer 41

may have strict rules

Question 42

what is a donation

Answer 42

money given voluntarily to support a business of a cause

Question 43

advantages of donations

Answer 43

no interest to pay

Question 44

disadvantages of donations

Answer 44

not guaranteed - depends on generosity

Question 45

what is peer to peer lending

Answer 45

a way to lend money individually through an online service

Question 46

advantages to peer to peer lending

Answer 46

high interest rates for lender

Question 47

disadvantages of peer to peer lending

Answer 47

credit risk can damage relationships

Question 48

What is invoice discounting

Answer 48

allowing business to access to money for any unpaid invoices

Question 49

advantages to invoice discounting

Answer 49

it is quick everything that is safe as it is confidential no interest