Sources of Finance for Businesses

The video tutorial explores various sources of finance available to businesses, both internal and external. Internal sources include personal savings, retained profits, and sale of assets, while external sources cover loans from family, friends, banks, and alternative methods like peer-to-peer funding, leasing, business angels, crowdfunding, government grants, and issuing shares. Each source is discussed in terms of benefits and drawbacks, focusing on control, risk, and financial implications.

Why is it crucial for a new business to consider its sources of finance?

• To increase its market share immediately

• To avoid paying taxes

• To fund its initial setup and growth

• To ensure it can pay its employees

What is a major advantage of using personal savings as a source of finance?

• It attracts more investors

• It guarantees business success

• It allows the owner to retain full control

• It requires no repayment

What is a potential downside of using retained profits for business finance?

• It may upset shareholders expecting dividends

• It requires high interest payments

• It is not a reliable source of finance

• It dilutes company ownership

Why might a business prefer a bank loan over selling shares?

• To avoid collateral requirements

• To maintain ownership control

• To increase company valuation

• To avoid paying interest

What is a key benefit of using an overdraft as a source of finance?

• It requires no bank approval

• It is a long-term solution

• It has low interest rates

• It offers flexible borrowing

What is a potential risk of peer-to-peer lending?

• Higher interest rates

• Less security and regulation

• Limited borrowing amounts

• Dilution of ownership

How does leasing help manage a business's cash flow?

• By increasing asset ownership

• By eliminating the need for assets

• By spreading payments over time

• By reducing overall expenses

What is a common feature of trade credit?

• Ownership of supplier's assets

• High interest rates

• Delayed payment terms

• Immediate payment upon delivery

What is a significant advantage of business angels as a source of finance?

• They offer interest-free loans

• They provide government grants

• They bring expertise and are willing to take risks

• They require no ownership stake

What is a challenge associated with crowdfunding?

• Dilution of company control

• Requirement for collateral

• Difficulty in persuading people to contribute

• High interest rates