Unit 3 - Source of Fiance

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  • Created by: sade
  • Created on: 29-12-13 17:08
why do businesses raise finance?
to expand, to replace, new market, research and develop, training
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Source of fiance for sole traders
Owner's savings, bank loan, suppliers, grants, loans
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source of fiance issues for sole traders
security, loss of control, evidence of potential, financial history
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source of fiance for partnerships
owner's saving, bank loan, suppliers,grant, hire purchase, leasing
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source of finance issues for partnership
problems of introducing new partner, lack of collateral, form a limited company?
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source of finance for public limited company
suppliers, banks, factoring, leasing, hire purchase, grants, loans, venture capital, share issues
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Source of fiance issues for public limited company
state of economy and stock exchange, recieving grant, recent financial performance, reputation
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source of finace issues for private limited company
lack of collateral, getting shareholders to agree, finding a suitable shareholder, loss of control, element of risk in loan
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source of finance for private limited company
suppilers, banks, factoring, leasing, hire purchase, grants, loans, venture, share issues
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internal sources of finance
reinvesting profits, working capital, sale of assets
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Definition of a external source of finance
capital into a business from other financial institions
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short term source of external finance
over draft, trade credit, factoring
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long term sources of external finance
owner's saving, loan, debtures, mortgage, hire purchase, grants
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what is retained profit
when profit are ploughed back into the business (after trading for a year)
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advantages of retained profit
doesn't have to be repaid, no interest
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disadvantages of retain profits
not always avaliable, may not make enough
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what is owner's investment
money that comes from owner's saving
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advantages of owner's investment
doesn't have to be repaid, no interest
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disadvantages of owners investment
there is a limit to the amount an owner can invest
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what is sale of fixed assets
selling un-needed assets
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advantages of sale of fixed assets
good way to raise finances from an unwanted asset
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disadvantages of sales of fixed assets
assets may not sell, can be slow method
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what is sale of stock
selling unsold stock
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advantages of sale of stock
quick, reduces storage cost
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disadvantages of sale of stock
may have to reduce price
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what is debt collection
a business can raise money buy collection whats owned
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advantages of debt collection
no additional cost
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what is mortgage
loan secured on a property, you own the propery once fully repaid
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advantages of mortgage
business has the use of property, repayment are spread, once repaid business owns the asset
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disadvantage of mortgage
expensive method, if payment are not kept up with could cause repossion
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what is hire purchase
initial deposit +regular payment over set period od time, owns the asset once payment completed
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advantages of hire purchase
immediate, payment is spread, own the asset once paid
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disadvantages of hire purchase
expensive method
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what is trade credit
"buy now pay later"
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advantages of trade credit
pay later, good cash flow (budgeting), no interest if paid back on time
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disadvantage of trade credit
discounts could be lost, have to carefully manage cash flow for debt
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what is government grants
government organisation offer grants for business (conditions apply)
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advantage of government grant
dont have to repay
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disadvantage of government grant
certain conditions may apply, not all business are eligible
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what is additonal partners
the new partners contribute capital and expertise
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advantage of additional partners
doesn't have repaid, no interest
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disadvantages of additional partners
diluting control, profits will be split more ways
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what is bank loan
money borrowed and paid back with an agreed rate of interest of set period of time
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advantage of bank loan
set repayment are spread - good for budgeting
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disadvantages of bank loan
expensive due to interest, requires secuirity on loan
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what is bank overdraft
business is allowed to be overdrawn on its account
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advantages of bank over draft
good for short term, cheaper than a bank loan
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disadvantage if bank overdraft
can be expensive if used over a long period of time, there is usually a limit
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what is share issue
limited company issuing shares
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advantage of share issue
doesn't have repaid, no interest
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disadvantage of share issue
profits will be paid out to more shareholder, ownership of the company could change hands
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what is leasing
"renting an asset"
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advantage of leasing
use of up to date equipment immediately, payment are spread
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disadvantage of leasing
can be expensive, asset belongs to finance company
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Other cards in this set

Card 2

Front

Source of fiance for sole traders

Back

Owner's savings, bank loan, suppliers, grants, loans

Card 3

Front

source of fiance issues for sole traders

Back

Preview of the front of card 3

Card 4

Front

source of fiance for partnerships

Back

Preview of the front of card 4

Card 5

Front

source of finance issues for partnership

Back

Preview of the front of card 5
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