Podcast
Questions and Answers
Which of the following is considered an internal source of finance?
Which of the following is considered an internal source of finance?
- Crowdfunding
- Retained earnings (correct)
- Venture capital
- Bank loans
What is a primary external source of finance for a startup company?
What is a primary external source of finance for a startup company?
- Issuing new stock (correct)
- Personal savings of owners
- Retained profits
- Selling existing assets
Which option best describes a disadvantage of using external sources of finance?
Which option best describes a disadvantage of using external sources of finance?
- Involves no repayment obligation
- Financial independence is increased
- Lower interest rates compared to internal sources
- May dilute ownership of the business (correct)
Which of the following is NOT an external source of finance?
Which of the following is NOT an external source of finance?
What potential risk is associated with relying heavily on external finance?
What potential risk is associated with relying heavily on external finance?
Flashcards
Internal Source of Finance
Internal Source of Finance
Money generated from within the company itself, such as retained earnings.
Primary External Source for Startups
Primary External Source for Startups
Issuing new stock to investors is a common way for startups to raise capital.
Disadvantage of External Finance
Disadvantage of External Finance
Using outside funds can dilute ownership, meaning existing owners have a smaller share of the company.
External Source of Finance
External Source of Finance
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Risk of Relying on External Finance
Risk of Relying on External Finance
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Study Notes
Internal Sources of Finance
- Internal sources of finance are funds generated from within the company's operations, not from external investors or lenders.
External Sources of Finance
- Primary external sources of finance for a startup company often include venture capital, angel investors, and crowdfunding. These sources provide capital to support the initial stages of growth and development.
Disadvantages of External Sources of Finance
- A disadvantage of using external sources of finance is the potential loss of control over the company's operations and decision-making. External investors often come with conditions and requirements that can impact the company's freedom.
External Sources of Finance Examples
- Examples of external sources of finance include bank loans, venture capital, and equity financing.
Risks of Relying Heavily on External Finance
- Relying heavily on external finance can expose the company to significant risks, including:
- Debt burden: High levels of debt can create significant financial pressure, especially during periods of economic downturn.
- Loss of control: External investors often demand a say in company decisions, which can dilute the founder's power.
- Dilution of ownership: Issuing new equity to outside investors can reduce the founder's stake and control over the company.
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Description
Test your knowledge on the sources of finance, both internal and external, for startup companies. This quiz covers advantages and disadvantages of various financing options. Challenge yourself with questions designed for budding entrepreneurs and finance enthusiasts.
