5.2 Sources of finance

• Internal sources rely on funds from within the business, while external sources involve borrowing or selling ownership stakes.


  True
• Internal sources avoid the costs and obligations associated with external financing.


  True
• Short-term finance supports immediate needs, while long-term finance facilitates growth.


  True
• Internal sources of finance generate funds from within the business
• External sources of finance refer to funds obtained from outside
• What is the typical purpose of short-term finance?

  Daily operations
• External sources of finance include loans, equity investment, and grants
• Retained profits are profits the business keeps rather than paying out as dividends
• External sources can dilute ownership but provide additional capital for growth.


  True
• Short-term finance is used for daily operations and working capital
• Internal sources of finance avoid the costs and obligations of external financing.


  True
• Using internal sources provides greater flexibility and avoids external obligations.

  True
• Short-term finance is used for periods less than one year
• Equity financing involves selling ownership stakes
• Retained profits are advantageous because they require no interest payments
• What is a disadvantage of equity investment?

  Dilutes ownership
• For which purpose may internal sources like retained profits be preferred?

  Short-term working capital
• What are sources of finance used for in a business?

  Funding operations and growth
• What are the two main examples of internal sources of finance?

  Retained profits, sale of assets
• Match the external source of finance with its description:

  Loans ↔️ Borrowing money from lenders

  Equity Investment ↔️ Selling ownership stakes

  Grants ↔️ Funds provided by organizations
• What is the duration of short-term finance?

  Less than one year
• What is an example of an internal source of finance?

  Retained profits
• What does the term 'retained profits' refer to?

  Profits kept by the business
• What is an example of an external source of finance?

  Loans
• Short-term finance supports immediate needs, while long-term finance facilitates growth.


  True
• Equity provides capital without repayment, but debt maintains full ownership.


  True
• When selecting finance sources, businesses should consider factors like cost, control, availability, and timing
• What is a key characteristic of debt financing?

  Requires repayment with interest
• Businesses should consider advantages and disadvantages when choosing a funding source.

  True