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Questions and Answers
What are the two main categories of sources from which businesses can acquire finance?
Businesses can acquire finance from either internal or external sources.
What is a bank overdraft and why is it a common source of finance for small and medium-sized businesses?
A bank overdraft is when a business makes payments from their current account which exceeds the cash they actually have available. It is common for small and medium-sized businesses because they often have finance requirements which fluctuate on a regular basis.
What are the two ways in which a bank would offer an overdraft to a business?
The bank would offer an overdraft to a business on either a rolling basis with no set end date with interest added at regular intervals or over a fixed period of time.
Why is choosing the best source of finance crucial for a business's future cash flows?
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What does the video aim to explain about the common sources of finance available to businesses?
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Study Notes
Sources of Finance
- Two main categories of sources from which businesses can acquire finance:
- Internal sources (from within the business)
- External sources (outside the business)
Bank Overdraft
- Definition: A bank overdraft is a short-term loan extended by a bank to a business, allowing the business to withdraw more money than it has in its account
- Common source of finance for small and medium-sized businesses due to its flexibility and ease of arrangement
- Offered in two ways:
- Fixed overdraft: A set amount agreed upon by the bank and the business
- Revolving overdraft: A flexible limit that can be adjusted based on the business's needs
Importance of Choosing the Right Source of Finance
- Crucial for a business's future cash flows, as it affects liquidity, profitability, and growth
- Incorrect choice can lead to financial difficulties and long-term consequences
Video Objective
- Explains common sources of finance available to businesses
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Description
Take this quiz to test your knowledge on the various sources of finance available to businesses. Explore internal and external options, short-term and long-term solutions, and learn about the best financing choices for long-term success.