D1 sources of finance

Which of the following is not an internal source of finance

• Net current assets

• Retained profit

• sale of assets

• Owners Capital

Answer explanation

Owners capital is being brought into the business from outside the businesses existing resources

Not an advantage of peer to peer lending

• Interest rates can be lower than banks

• can still agree a fixed rate of interest

• Able to agree preferential terms lending to/from other businesses

• amounts may be limited in value

Correct definition of peer to peer lending

• Involves one business lending money to another business person in return for interest payments

• Lending money from family or friends in return for payments

• Peer groups donating money as needed

• Family or friends agreeing to lend limited money in the short term

An advantage of sale of assets as a source of finance

• It is unlikely to receive the full value when selling the asset

• Can allow a business to raise capital from an item no longer required

• May still need the asset or have none to sell

• May have to repurchase or lease the asset in the future

The main difference between crowdfunding and donations is...

• relies on people being interested and giving money to the business

• chance the amount needed may not be raised

• Donations their is no need to repay, financial incentive or potential loss of ownership

• crowdfunding can offer incentives such as discounts, advanced sales options or bonus content depending on the business

Not a disadvantage of retained profit

• reduces payments /dividends to shareholders

• May not have the amount required

• No interest paid

• Requires the business to make profit first

retained profit is

• profit made and kept in the business and reinvested

• money the owner has put in the business

• the profit made that year by the business

• the profit the business has paid to its shareholders for investing in the business

Trade credit is vital for some trades businesses because

• they are always in debt

• It allows them to get materials for a job to complete and pay later, usually after giving chance for the customer to pay

• Gives then ability buy now and only pay once the customer has paid

• Gives them a discount for paying upfront

Not a source of short term credit

• trade credit

• credit card

• mortgage

• overdraft

Trade credit will help a business because... which is not correct...

• Allows them to buy materials now and pay at an agreed later date

• Improves cashflow

• No loss of ownership or control

• they will be offered discounts

Answer explanation

By taking trade credit they may lose the ability of invoice discounting - getting a reduced price by paying upfront