4.3 Sources of Finance

What does sources of finance mean?

• How businesses gain additional money when they are in financial difficulty

• Where businesses get capital from to fund their business activities

• How businesses promote and advertise their business activities

• All of the above

What are the two main categories of sources of finance?

• Short term and long term

• External and internal

• Business based and bank based

• Money and capital

Which of these is the correct definition of trade credit?

• 
  Where a business can spend more money than it has in its bank account

• Money the business owners have invested through their own savings

• An agreement with a supplier to pay bills at a later date

• Money borrowed from a bank or financial institutiions

Which of the following is a disadvantage of an overdraft?

• Offers flexibility

• 
  Usually has a high interest rate

• 
  Interest is only paid on the amount used

• Allows for long term investment in the business

Which source of finance leads to a dilution of ownership?

• 
  Personal savings

• Share capital

• Bank loans

• Borrowing from friends and family

Which of the following sources of finance incurs interest

• Share capital

• Retained profit

• Bank loan

• Owners capital

Which type of finance is not appropriate for a new start-up business

• Government grants

• Owners capital

• Share issues

• Friends and family

What is retained profit?

• Where business profits are reinvested back into the business

• Where business profits are taken out to pay shareholders

• Where a business fails to make a profit

• Where a business increases its fixed costs

Which of the following is not a type of internal finance?

• 
  Retained profit

• Selling assets

• Family and friends

• Owners capital

What is an advantage of a bank loan?

• Can get a significant amount of money at one time

• 
  Paying interest

• Money must be paid back

• Quick to arrange