Sources of Finance

Sources of Finance

NCFE Level 1/2 Technical Award in Business Enterprise

Money obtained from someone outside the business, this usually costs more than the amount obtained as interest is charged

​External Sources of Finance

Money obtained from within the business, this type of finance is cheaper, however it does mean the money can’t be used for other things

​Internal Sources of Finance

Money is clearly a vital part of setting up any Business, this usually means that finance needs to be obtained. A business can do this through

Multiple Choice

What does internal source of finance mean?

• A source from within the business

• A source from outside the business

Multiple Select

What does external source of finance mean?

• A source from within the business

• A source from outside the business

Multiple Choice

Which is an example of an internal source of finance?

• Owner's Capital

• Venture Capitalist

• Overdraft

• Trade credit

Multiple Choice

Which is an example of an external source of finance?

• Owner's capital

• Hire Purchase

• Retained profits

• Sale of assets

Multiple Choice

Which is an example of an external source of finance?

• Owners' Funds

• Sale of assets

• Retained profits

• Bank loan

Multiple Choice

What is an advantage of a bank loan?

• There will be little or no interest
• You can pay in smaller installments
• They are quick and easy to arrange
• You don't have to pay it back

Multiple Choice

What is an advantage of owner's capital?

• There will be interest

• You can pay in smaller installments

• They take a long time to arrange

• You don't have to pay it back

Multiple Choice

What is an advantage of an overdraft?

• There is never interest

• You can pay in smaller installments

• Useful for relatively small sums and short term finance

• You don't have to pay it back

Multiple Choice

Which of these facts about venture capitalists is NOT true?

• Venture capitalists tend to operate in fairly risky markets

• Venture capitalists would be paid a share of the profits

• Venture capitalists usually provide money only and have no interest in running the business

• Venture capitalists usually invest large sums of money

Multiple Select

Which of the following are DISADVANTAGES of selling shares as a source of finance? (select as many as appropriate)

• It means limited liability for the owners

• Dividends need to be paid to shareholders

• Large sums of money can be raised

• Does not apply to Partnerships or Sole Traders

Open Ended

Ollies Brollies is a major umbrella retailer in the UK. Ollie is looking to open a new umbrellas shop in Woking. Ollie has a choice between buying then shop using retained profit or purchasing it with a long term bank loan.

(A) Explain ONE advantage and ONE disadvantage of Ollie buying the shop using retained profit (4) and (B) Explain ONE advantage and ONE disadvantage of Ollie buying the shop with a long term bank loan