S4 BM - Sources of Finance

S4 BM - Sources of Finance

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Multiple Select

What factors will influence the types of finance a business uses? (select all the correct answers)

• objectives of the organisation

• amount of finance required

• the type of business

• how far away the supplier is located

• market research collected

Sectors of Economy

Private - eg, Ltd would use a share issue
Public - using tax
Third - donations

Multiple Choice

Which source of finance would a Private Limited Company (Ltd) use?

• share issue

• donations

• tax

Multiple Choice

Which source of finance would a charity use?

• share issue

• donations

• tax

Multiple Choice

Which source of finance would the NHS (public sector) use?

• share issue

• donations

• tax

• bank overdraft

• bank loan

• grant

• mortgage

• share issue

• owner investment

Sources of Finance

• loan from family

  or friends

• hire purchase

• crowd funding

• leasing

• retained profit

• venture capital

Multiple Choice

A bank loan is a special type of loan used to purchase property or land.

• true

• false

Multiple Choice

An advantage of a loan from family and friends:

• no interest to pay

• arguments can occur

• interest must be paid

Multiple Select

Which are true of government grants? (choose all that apply)

• interest must be paid

• don't need to pay back

• must meet criteria

• you get it from the national lottery

Multiple Choice

You will NOT own the item when you buy it through Hire Purchase.

• true

• false

Multiple Choice

Choose the best description of a bank overdraft.

• It is an overdraft from a bank.

• Taking more money out of a bank account than is available.

• A loan of money from the bank repaid over time.

• A special type of loan used to purchase property.

Multiple Select

Which of the following are true of mortgages? (choose all that apply)

• used to buy property/land

• must pay interest

• does not need to be paid back

• short term method of finance

Personal savings may be lost if the business is unsuccessful.

Disadvantages

Does not need to be paid back.
Full control of the business is maintained.

Advantages

Owner Investment

Multiple Choice

Describe an advantage of Owner Investment.

• Full control of the business is maintained as it is the money used from the owner.

• Personal savings of the owner may be lost if the business is unsuccessful.

• No need to pay back.

• Large amounts of money can be raised due to the number of shares sold in the business

For profits to build up to use in this way can take too long.

Disadvantages

Does not need to be repaid.

Advantages

Retained Profit

Multiple Choice

Explain an advantage of Retained Profit.

• It doesn't need to be repaid this means that no additional interest payments need to be made.

• Can take too long for profits to build up this means that business opportunities for development are missed.

• Unlimited liability this means that personal assets may be lost if in debt.

• This is profit that has been made by the business in previous years that is then reinvested back into the company.

Over time it can be a more expensive way to obtain assets.

Assets are never owned by the business

Disadvantages

Large amounts of money are not required up front to lease machinery.

The leasing company are responsible for repairs and maintenance

Advantages

Leasing

Multiple Select

Which is true of Leasing? (choose all that apply)

• Large amounts of money are not required up front to lease machinery

• Over time it can be a more expensive way to obtain assets

• The leasing company are responsible for repairs and maintenance

• Assets will eventually be owned by the business

• Equipment is not owned until the final payment is made

Shareholders need to be paid a dividend each year.

Shareholders become part owners of the business.

Disadvantages

Finance raised does not need to be paid back.

Large amounts of finance can be raised.

Advantages

Share Issue

Multiple Select

Who can use Share Issue as a source of finance?

• sole trader

• partnership

• private limited company

• charity

• the government

VC may want a share of the business.

A larger return may be required due to the high risk nature of the investment.

Disadvantages

Available for more risky investment.

Advantages

Venture Capital

Multiple Choice

Define the term 'Venture Capital'

• money that investors provide to a company that is starting up or expanding

• getting small amounts of finance from a large amount of people

• this is usually done through social media or crowd funding websites

• capital that is a venture for people who need money to start a business

A public request risks your project being copied by competitors.

Targeted amount must be reached otherwise business gets nothing.

Disadvantages

Access to large amount of investors.

Fast way to raise finance.

Advantages

Crowd Funding

Which source of finance is being described?

Be ready to type in your answers!

Open Ended

Past Paper Question

Justify the use of the following sources of finance: 

• - a bank loan; 

• - a grant; 

• - an overdraft. 

(3 marks)

Justify the use of the following sources of finance: 

• a bank loan;  a grant;  an overdraft (3 marks)

Bank loan  

• Paid back in instalments 

• Paid over a long period of time  

Grant  

• Money does not need to be repaid  

Overdraft 

• Suitable for short-term cash flow problems  

• Money available quickly as it can be prearranged 

• Can take more money out than you have in your account 

You would use XYZ because...

Open Ended

Past Paper Question

Describe sources of finance available to a private limited company for expansion. (2 marks)

Poll

How confident do you feel about Sources of Finance?

• Not confident

• Confident

• Very confident

Draw

Sources of Finance - Brain Dump!

Write keywords/draw pictures from today's lesson: