External sources:

• What are external sources of finance?

  Funds from outside the business
• What does leasing involve instead of buying equipment outright?

  Renting from a company
• Match the external source of finance with its description:

  Bank loans ↔️ Borrowing money with a repayment schedule

  Overdrafts ↔️ Flexible line of credit

  Leasing ↔️ Renting equipment or property

  Equity finance ↔️ Selling shares to investors

  Venture capital ↔️ Investment in high-growth startups
• Overdrafts are useful for managing cash flow but have high interest rates.


  True
• Leasing provides lower upfront costs but no asset ownership.


  True
• Leasing allows a business to own the asset after the lease term ends.

  False
• Key characteristics of external sources of finance

  1️⃣ External origin

  2️⃣ Essential for growth

  3️⃣ Cash flow management
• Overdrafts are limited in their borrowing amounts
• Key differences in repayment terms for external sources

  1️⃣ Bank loans require scheduled repayments

  2️⃣ Overdrafts are due on demand

  3️⃣ Leasing has fixed rental payments

  4️⃣ Equity finance requires no repayment
• Match the key trade-off with the external source:

  Bank Loan ↔️ Predictability vs. flexibility

  Leasing ↔️ Lower upfront costs vs. no ownership

  Equity Finance ↔️ Large capital without repayment vs. loss of control
• What is the term for raising capital by selling shares to external investors?

  Equity finance
• Overdrafts allow businesses to borrow up to an agreed limit from a bank.

  True
• Arrange the following external sources of finance from lowest to highest risk for the lender:

  1️⃣ Overdrafts

  2️⃣ Bank loans

  3️⃣ Leasing

  4️⃣ Equity finance

  5️⃣ Venture capital
• Money borrowed from banks with scheduled repayments and interest is called a bank loan
• Selling shares in the business to raise capital dilutes ownership
• Equity finance allows businesses to raise capital without requiring repayment
• Overdrafts are useful for managing short-term cash flow
• The key trade-off in bank loans is their security versus the higher costs of overdrafts
• What is a major advantage of bank loans over overdrafts?

  Predictable payments
• External sources of finance always involve giving up full business control.

  False
• Bank loans often require collateral as security.
• Starbucks uses leasing to acquire coffee shop equipment
• Borrowing money from a bank with interest and a repayment schedule is known as a bank loan
• Raising capital by selling shares in the business is called equity finance
• Why are external sources of finance crucial for businesses?

  Expansion and cash flow
• What is a key benefit of leasing equipment over buying it?

  Lower initial costs
• What is a disadvantage of overdrafts?

  High interest rates
• What is a key advantage of bank loans in terms of repayment?

  Predictable repayment schedule
• What is a major disadvantage of equity finance for business owners?

  Dilution of ownership
• Internal sources of finance are funds obtained from outside the company.

  False
• Match the external source with its disadvantage:

  Bank Loan ↔️ Requires collateral

  Overdraft ↔️ High interest rates

  Leasing ↔️ No ownership of asset

  Equity Finance ↔️ Dilution of ownership
• Which external source of finance has no interest costs?

  Equity finance
• What was EasyJet's purpose for using a bank loan?

  Expansion of fleet