Sources of finance

Which of the below list contains only examples of internal sources of finance for a business?

• leasing, hire purchase, credit cards

• retained profit, savings, hire purchase

• savings, owners' capital, retained profit

• bank loans, savings, credit card

Retained profit is defined as...

• profit that is then shared amongst shareholders as dividends.

• part of the profits that the owners do not distribute to shareholders but use to reinvest into the business.

• part of the profit that is taken up by taxes.

• a buffer that all businesses have to allow for unplanned expenses.

A disadvantage of a hire purchase is...

• the asset may depreciate faster than the repayment schedule.

• the owners lose some of the equity in their business.

• approval can be time consuming and costly.

• the business will never own the asset.

Which of the following is an accurate description of an overdraft?

• an agreement with the bank to borrow a fixed amount to cover card transactions or withdrawals.

• a card issued by a bank that allows a business to purchase goods or services on a credit agreement.

• a fixed amount that a business borrows and pays back, with interest, on a monthly basis.

• funding issued by another organisation that does not have to be paid back.

Crowdfunding can be a good option because...

• it provides expertise and support from industry experts.

• it allows investment decisions to be made quickly.

• it involves government support and assurance.

• it can raise large amounts from lots of investors and can be good for publicity.

Government money that a business doesn't have to pay back but often has to be used for specific purposes is known as (a)   funding.

(a)   Limited Companies can sell their shares on the stock exchange.

Which of the following source of finance is the most suitable for a start up business?

• Donation

• Overdraft

• Hire purchase

• Start up loan

Disadvantages of venture capital funding include...

• being difficult to obtain, losing a % of equity and rapid/ aggressive growth being expected.

• losing a % of equity, could damage brand reputation, having to pay interest on repayments.

• charges for late payment, ideas becoming public and can then be stolen by competitors.

• not owning the assets, being a short term solution, interest on repayments.

Owners' (a)   is money that the owner invests in their own company.