6.1 Sources of finance

Which of the following statements best describes an internal source of finance?

• Finance generated from outside of the business

• Finance generated from inside the business

• Finance generated from retained profit only

• Finance generated from

  a new share issue

Which of the following is classed as a short term source of finance?

• Trade credit

• Retained profit

• New share issue

• Government grant

Which of the following is an advantage to a business of using a government grant as a source of finance?

• It does not need to be repaid

• Businesses must meet specific conditions to qualify

• It is relatively quick and easy to apply for one

• The business will pay less tax on its profits

Which of the following is a reason why a new business start-up would need finance?

• To fund expansion

• to pay for replacement equipment

• To carry out maintenance on a new piece of machinery

• To pay a deposit for a premises

An established seasonal business is experiencing cash flow problems during the winter months. Which of the following would be a suitable source of finance to overcome this problem?

• New share issue

• Government grant

• Overdraft

• Hire purchase

Which of the following might a bank request before it decides to issue a loan to a new business start-up that will operate as a sole trader and will trade solely in the UK?

• A business plan

• Data on the exchange rate

• Information on the share price

• That the business should become a partnership

Which of the following is an example of an external source of finance?

• Sale and leaseback

• Selling unwanted assets

• New share issue

• Retained profits

A successful sole trader wants to raise funds to open a second restaurant and is eager to retain full control of the business. Which of the following sources of finance would be the most appropriate to fund this expansion?

• Gain a partner

• Arrange an overdraft facility

• Obtain a bank loan

• Issue new shares

Hire purchase is used when a business:

• Wishes to pay for an asset in installments

• Wishes to change its legal structure

• Wants to own the asset straight away

• Wishes to upgrade assets on a regular basis

A mortgage would most commonly be used to pay for:

• Vehicles

• Machinery

• Stock

• Property