Business finance (9)

• what is "sources of finance"?

  different ways to make and get finance. It can be internal or external.
• What does internal source of finance mean?

  Finance that comes from within the company or family and friends.
• What does external source of finance mean?

  Finance that comes from outside the company.
• What are the internal sources of finance?

  Retained profits, sale of assets and working capital
• What is retained profits?

  As a business becomes more profitable, it makes sense to build up and retain some profit. This will provide a liquidity buffer and potential funds for growth.
• What is an advantage of retained profit?

  the cheapest and fastest source of finance
• What is a disadvantage of retained profits?

  the loss of profit distribution to owners
• What is working capital?

  By reducing their trade credit period and collecting debts more efficiently
• What is an advantage of working capital?

  business may receive money from customers more quickly
• What is a disadvantage of working capital?

  likely to drive customers away and may have the opposite effect on making finance available
• what is Sale of assets?

  Established businesses are able to sell off assets that are no longer required
• What is a disadvantage of sale of assets?

  Smaller businesses are unlikely to have such unwanted assets
• What is an advantage of sale of assets?

  Fast and easy way to get finance
• What are the external sources of finance?

  Bank loans, overdraft, Trade credit, factoring, Leasing / hire purchase, Commercial mortgages, sale then leaseback, share capital, venture capital, and government grants
• What is a bank loan?

  A bank loan is a sum of money borrowed from a bank that must be repaid with interest over a specified period of time.
• What is an advantage of bank loans?

  a large sum of money is given fast
• What is a disadvantage of bank loan?

  You have to pay interest on the money borrowed
• What is an overdraft?

  An overdraft is the facility to withdraw more from an account than is in the bank account.
• What is an advantage of an overdraft?

  provides immediate access to extra funds when you have a short-term cash shortfall.
• What is a disadvantage of an overdraft?

  Has very high interest rates
• What is trade credit?

  Businesses buy items such as fuel and raw material and pay for

  them at a later date
• What is an advantage of trade credit?

  It is interest free
• What is a disadvantage of trade credit?

  delaying payment may result in higher costs. Businesses that take a long time to pay their bills also tend to gain a bad reputation in the marketplace.
• What is factoring?

  Factoring is a method of turning invoices into cash. factoring services pay a proportion of the value of an invoice. The balance, minus a fee.
• What is an advantage of factoring?

  faster customer payments means lower interest costs on any overdraft facility
• What is a disadvantage of factoring?

  Factoring services are only offered to businesses with a good trading record
• What is leasing?

  paying monthly fees to have access to something.
• What is an advantage of leasing?

  An advantage is that if there is damage too the item the leasing company fixes it.
• What is a disadvantages of leasing?

  You never get to own the asset leased.
• What is hire purchase?

  Paying monthly for an item but with option for purchase at the end.
• What is an advantage of hire purchase?

  After paying the asset can become yours
• What is a disadvantage of hire purchase?

  The business is liable for any damage.
• What is a commercial mortgage?

  A commercial mortgage is a type of loan specifically used to finance the purchase of commercial property, such as office buildings, retail spaces, or apartment buildings.
• What is an advantage of a commercial mortgage?

  generally have predictable costs. this can be helpful with budgeting
• What is a disadvantage of commercial mortgage?

  Failure to make repayments may lead to the property being repossessed
• What is sale and leaseback?

  Sale and leaseback involves the business selling assets to a finance company and then leasing the asset back.
• What is an advantage of sale and leaseback?

  Sale and leaseback also carries potential tax benefits as the leasing costs are offset as an operating expense
• What is a disadvantage of sale and leaseback?

  Loss of Ownership and Control
• what is share capital Share capital?

  Share capital refers to the total value of the shares issued by a company in exchange for money or other assets.
• What is an advantage of share capital?

  it does not have to be repaid