Financing for Small Business

Internal sources of finance are

• provided by parents

• provided from within the business

• provided by the bank

• provided from outside the business

External sources of finance could include:

• trade credit

• leasing

• term loans

• bank overdraft

• all of the above

Advantages of capital contribution include

• no interest

• limited to personal resources

• No fixed payments

• both a & b

• both a & c

Term loans disadvantages do not include

• can be designed for the needs of a business

• fixed payments must be budgeted

• involves a commitment for an extended period of time

• security may be required

Leasing does not mean

• the the business avoids large cash outlay

• The business owns the asset

• the assets can be updated every couple of years

Bank overdraft is

• Available for all business

• classified as a current liability

• free from interest

• ongoing for a business

Flat rate of interest is

• applied to the principal amount over the borrowed fixed term

• based on the current amount owed

• no interest is charged

When using reducing balance interest formula

• The interest rate remains consistent

• The interest reduces as the amount of the loan reduces

• The interest is payable each year

• no interest is charged

Credit Checks are required because

• They show the history of the businesses ability to pay back loans

• Show if a business has been in financial debt in the past

• provide a business with a credit rating

• all of the above

Debt ratio is calculated by

• comparing current assets and current liabilities

• seeing how much a business owes

• the owners investment in the business

• comparing total liabilities with total assets