Sources of finance

• Define retained profits

  Retained profits are held back in the business for reinvestments rather than being used as dividends.
• Give an advantage of a business using retained profit

  Cheap, quick and convenient. There is also easy access to money
• Give a disadvantage of a business using retained profit

  Once the money is gone it is unavailable for any future forseen problems the business might face.
• Define Selling of assets

  Selling unwanted assets, such as machinery and equipment
• Give an advantage of a business using selling of assets

  Convenient and can create space for more profitable uses, quick process.
• Give some disadvantages of a business using selling of assets

  The business might not get the full market value of assets or even sell them at all

  The business may need these assets in the future
• Define 'Owner's savings'

  The business owner's own savings
• Give an advantage of a business using the owner's savings

  Cheap, quick and convenient
• Give a disadvantage of a business using the owner's savings

  The owner might not have savings or they may need the cash for personal use.
• Define loan capital

  A lump sum of capital borrowed from a bank and paid back in instalments
• Give an advantage of a business using loan capital

  Regular payments are made over a period of time
• Give two disadvantages of a business using loan capital

  Interest is applied, which can be expensive

  Can take a while for the loan to be approved, may also not be qualified for a loan
• Define share capital

  Money raised when a business becomes a Ltd by offering shares to a select group of people in return for capitsl
• Give an advantage of a business using share capital

  Does not have to be repaid and no interest is applied
• Give a disadvantage of a business using share capital

  Profits made by the business are paid to shareholders so the control of the business gets diluted.
• Define stock market floatation

  Money raised when a business becomes a PLC by offering shares to the public to buy
• State two advantages of a business using stock market floatation

  Shares don't have to repaid and no interest is applied

  The business can gain recognition through using stock market floatation
• State two disadvantages of a business using stock market floatation

  It can be complicated and expensive. Possibility of losing control as anyone can buy shares

  Risk that some investors will only buy shares to make a quick profit by selling them when the share price increases.