Sources of Finance

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Hire Purchase

Definition - Paying for a product over a certain amount of time

Advantages - Companies can use the product whilst they are paying for it

Disadvantages- If the payments are not made them there is a risk the product can be taken away from the user. If the product breaks then it is the users responsibility to get it repaired

Examples - Buy now pay nest year

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Hire Purchase Questions

1. Does the user have a certain amount of time to pay for the product or do they have to pay before they can use it?

2. Complete the sentence - Whilst a company is..............for the product they can use it.

3. Whilst the user is paying for the product whos responsibilty is it to get it repaired?

4. If payments are not made then what is the consequence?

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Definition - Renting a product

Advantages - If a new product/version is created then the leasee can stop lease and lease the newer version. Leasing saves money.

Disadvantages - The leasee never owns the product. Stopping/Cancelling a lease costs a lot of money. The leasee must fix the product if it breaks

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Leasing Questions

1. Finish the statement - Leasing is when you .... a product.

2. Who is responsible for fixing the product?

3. Who owns the product during the lease?

4. True/False - Stopping/Cancelling a lease is cheap.

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Definition - Selling a debt/accounts to another company

Advantages - Money now, rather than later.

Disadvantages - Risk loosing money

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Factoring Questions

1. Complete the sentence - factoring is selling a ..................... to another ...........

2. What is the advantage of factoring and why do companies choose to do it?

3. What do a business have to consider? (disadvantage)

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Trade Credit

Definition- Paying for a product over a short amount of time (30 days). The business negotiates a delay between receiving the product (e.g raw materials) and paying for it/them.

Advantages - The company can produce a product using the raw materials and then sell it. The money made from the sales can pay for the raw materials. Suppliers are willing as it counts as a sale but can be risky.

Diadvantages - The company may not make the products and sell them quick enough to pay for the raw materials.

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Trade Credit Questions

1. Is trade credit long-term or short-term?

2. Complete - A company makes a ......... using the produce from their ........., they then ........ the product and pay the ............ with the money made from the sales

Words for questions 2 - suppliers, product,sell, suppliers.

3. What is the main disadvantage, beginning with R?

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Definition - A long term loan with low fixed interest rates and fixed repayments

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Debenture Questions

1. Complete - Debentures are ........ with ..... fixed ......... rates and ...... repayment dates.

Words for question 1 - low, loans, fixed interest.

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Venture Capital

Definitions - provide capital by giving loans and by buying shares.

Suitable for - Business start-ups or expansion.

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Venture Capital Questions

1. Complete. Venture capitals give ....... and ....... shares

2. They are suitable for........................................................

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Bank Over Draft

Definition- The bank allows a business to spend more than they have in their bank account, up to a limit. Negative money in a back account.

Advantages- Quick and easy to set up. Flexible.

Disadvantages - High interest rates meaning they are expensive is used as long-term finance. the bank can remove the overdraft and demand all the money back.

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Bank Over Draft Questions

1. True or False. An overdraft is when you have positive money in your bank account?

2. Complete the sentence - A bank loan is q..... and e...... to set up.

3. True or False - Bank over drafts are Flexible.

4. Complete the sentence - Interests rates are .......

5. Complete the sentence - A bank can r......... the overdraft and d......... all the m........ back

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Definition - A long-term loan, specifically for property.

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Mortgage Questions

1. True or False - A mortgage is a short-term loan

2. Complete the sentence - Mortgages are specifically for p........

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