business finance

• What is the primary necessity for businesses to survive?

  Finance
• Why might new businesses struggle to find external sources of finance?

  They lack an effective trading record
• What factors determine the most suitable finance option for a business?

  • Amount of funding needed
  • Duration for which the money is required
  • Purpose of the finance
  • Affordability of repayments
  • Availability of personal or business assets as security
  • Willingness to give up ownership
• What is considered the single most important source of finance for a business?

  Retained profit
• What is the main cost associated with retained profit?

  The loss of profit distribution to owners
• How can a business improve its working capital?

  By reducing their trade credit period and collecting debts more efficiently
• What is a potential downside of reducing stock holdings for a business?


  A sudden surge in demand could result in lost sales
• What can established businesses do with unwanted assets?

  Sell them off
• Why might smaller businesses be less likely to sell off assets?

  They are more likely to want to acquire assets for growth
• What is a common requirement for a new business to obtain a bank loan?

  Offering security
• What is an overdraft?

  A facility to withdraw more from an account than is available, resulting in a negative balance
• What is a risk associated with relying on an overdraft for day-to-day funds?


  The bank can withdraw the overdraft facility with just 30 days' notice
• What is trade credit?


  An interest-free way to raise finance by delaying payment for goods
• What is factoring in the context of business finance?

  A method of turning invoices into cash by receiving a proportion of the invoice value upfront
• What are the benefits of using a factoring service?

  It provides faster customer payments and savings in administration costs
• What is the difference between leasing and hire purchase?

  Leasing does not lead to ownership, while hire purchase does
• What is a commercial mortgage?

  A loan secured against property owned by the business
• What is a potential consequence of failing to make repayments on a commercial mortgage?

  The property may be repossessed by the lender
• What is sale and leaseback?


  A method where a business sells assets and then leases them back
• What is share capital?


  A long-term method of providing funds by selling shares
• What is a disadvantage of bringing in new shareholders?

  Loss of control over business decisions
• Who are venture capitalists?

  Professional investors who invest large amounts of capital into small and medium-sized businesses
• What do venture capitalists expect in return for their investment?

  To be involved in running the business and to see growth
• What type of businesses often rely on venture capital?

  Growing businesses, especially in the technology sector
• What type of government assistance is available for businesses?


  Finance for business start-up schemes
• What is a common characteristic of government finance for businesses?

  The qualifying criteria tend to be quite narrow
• What type of businesses are often favored for government assistance?

  Businesses setting up in regions of high unemployment