Factors influencing the choice of finance:

Cards (82)

  • The cost of finance refers to the interest rate or return required by the finance provider
  • What is required when security is a factor in choosing finance?
    Collateral or assets
  • How does the size of a business influence its choice of finance?
    Affects availability and terms
  • Why may small business owners be reluctant to issue shares?
    To avoid diluting control
  • The length of time the finance is available for is called the timescale
  • Profits kept within the business are called retained profits.
  • What are the four key factors to consider when choosing a source of finance?
    Cost, control, timescale, security
  • Why do larger businesses have more flexibility in choosing finance options?
    Financial stability and size
  • Businesses with higher risk tolerance may prefer equity financing.
  • What should businesses consider when choosing financing options to manage risk effectively?
    Risk tolerance
  • Businesses choose financing options that best suit their risk tolerance, resources, and overall approach to managing risk.
  • Small businesses often have limited access to share capital and corporate bonds.
  • A strong financial position allows businesses to negotiate lower interest rates.

    True
  • Key security types include property, equipment, inventory, and accounts receivable.
  • Why is it important for businesses to choose the right source of finance?
    Long-term success and sustainability
  • The timescale factor refers to the length of time the finance is available for
  • Match the factor with its explanation:
    Cost ↔️ Interest rate or return
    Control ↔️ Level of ownership retained
    Timescale ↔️ Length of finance availability
  • Larger businesses can negotiate lower interest rates due to their bargaining power.
    True
  • The interest rate required by the finance provider is a key factor called cost
  • Why is choosing the right source of finance crucial for a business?
    Impacts long-term success
  • Share capital involves selling ownership stakes in the business.
    True
  • Small businesses may face higher interest rates compared to large businesses.

    True
  • What are the advantages of a strong financial position for a business?
    Wider range of options
  • Match the risk tolerance with the preferred financing option:
    High ↔️ Equity financing
    Low ↔️ Loans
  • Businesses must consider the level of control and ownership they retain when choosing finance.
  • Match the source of finance with its description:
    Retained Profits ↔️ Profits kept within the business
    Loans ↔️ Borrowed money with interest
    Overdrafts ↔️ Short-term borrowing from a bank
    Leasing/Hire Purchase ↔️ Renting equipment rather than buying it
    Share Capital ↔️ Money raised by selling ownership stakes
    Grants ↔️ Financial assistance from organizations
  • The current financial position of a business determines the availability, cost, and terms of finance.
  • Security refers to collateral or assets provided to secure a loan or investment.
  • What is the primary factor influencing the choice of finance when considering the time horizon?
    Whether financing is short-term or long-term
  • Short-term financing usually has lower interest rates compared to long-term financing.
    False
  • Steps to consider when choosing financing based on the time horizon.
    1️⃣ Assess whether financing is short-term or long-term
    2️⃣ Evaluate cost implications
    3️⃣ Analyze impact on control
    4️⃣ Determine security requirements
  • Choosing the right source of finance is crucial for the long-term success of a business.

    True
  • Overdrafts have variable interest rates.

    True
  • Small businesses are more likely to provide collateral or assets as security.
  • What is an advantage of a strong financial position when seeking finance?
    Lower interest rates
  • A strong financial position allows a business to negotiate lower interest rates and better terms.

    True
  • High-risk businesses often prefer equity financing despite greater uncertainty.

    True
  • Security requirements influence the accessibility and cost of finance.

    True
  • What reduces costs and improves financing terms for businesses?
    Strong current financial position
  • Match the time horizon with its financing characteristics:
    Short-Term ↔️ Higher interest rates
    Long-Term ↔️ Lower interest rates