5.2 Sources of Finance

• What are sources of finance used for in a business?

  To operate and grow
• Internal sources of finance include bank loans and investment from shareholders.

  False
• What are retained profits?

  Profits kept by the business
• What is a bank loan?

  Borrowing money from a bank
• Why are retained profits advantageous as a source of finance?

  No repayment necessary
• How can retained profits be used by a business?

  To fund expansion
• What is a disadvantage of owner's investments?

  Limited funds available
• What does investment from shareholders involve?

  Selling shares
• Internal sources of finance are generated within the business
• What can retained profits be used for?

  Expansion, innovation, debt reduction
• Give an example of an internal source of finance.

  Retained profits
• The sale of assets is an example of an internal source of finance.


  True
• Investment from shareholders involves selling shares in the business.
• Owner's investments can strain personal finances if not managed carefully.
• Owner's investments can be in the form of cash, property, or equipment.
• Internal sources of finance include retained profits and the sale of assets.
• Owner's investments show commitment and confidence in the business.
• Retained profits are profits kept after paying expenses and dividends


  True
• Owner's investments can include cash, property, or equipment
• A bank loan requires repayment with interest
• External sources may provide larger capital but come with interest or equity dilution

  True
• Bank loans offer large sums but require strict approval and interest
• Crowdfunding requires strong marketing to build awareness
• Selling assets provides immediate cash but reduces the business's asset base.

  True
• What is a key disadvantage of venture capital?

  Loss of control
• What are internal sources of finance generated from within a business?

  Retained profits, asset sales
• Internal sources of finance offer more control but may be limited in scale.


  True
• Retained profits and owner's investments provide control over business finances but have limitations.

  True
• Why might a crowdfunding campaign fail to reach its funding goal?

  Lack of strong marketing
• Selling assets reduces the business's asset base.
• Retained profits may not be sufficient for large investments
• Bank loans offer large sums but require strict approval and interest costs
• Crowdfunding requires strong marketing but may not reach the funding goal
• Order the following sources of finance from least to most control for the business:

  1️⃣ Bank Loans

  2️⃣ Venture Capital

  3️⃣ Crowdfunding

  4️⃣ Retained Profits

  5️⃣ Sale of Assets
• Bank loans have flexible repayment terms but require interest payments.


  True
• Crowdfunding success depends on strong marketing and audience engagement.

  True
• Sources of finance can be categorized as either internal or external.
• External sources of finance include bank loans and investment from shareholders.
• Internal sources of finance are generated outside the business.

  False
• External sources of finance dilute ownership in the business.


  True