Podcast
Questions and Answers
What is one way a business might raise cash through asset management?
What is one way a business might raise cash through asset management?
Which of the following is a characteristic of retained profit as a source of finance?
Which of the following is a characteristic of retained profit as a source of finance?
How might a business utilize crowdfunding as an external source of finance?
How might a business utilize crowdfunding as an external source of finance?
Which of the following represents a high-risk investment option for lenders?
Which of the following represents a high-risk investment option for lenders?
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What is a potential disadvantage of using an overdraft as a source of finance?
What is a potential disadvantage of using an overdraft as a source of finance?
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Study Notes
Personal Funds
- Business owners may use their personal savings or take out personal loans secured by assets to invest in the business.
- They may also seek funding from family and friends.
- Investing personal funds can encourage external investment in the business.
Sale of Assets
- Selling unneeded assets can generate substantial funds, particularly for large capital expenditures.
Leaseback
- Businesses can sell assets and lease them back, receiving rental income while obtaining immediate capital.
Retained Profits
- Accumulated profits not distributed as dividends or wages can be used for financing.
- Retained profits are only available to profitable businesses.
External Sources of Finance
Loans
- Businesses can secure loans, potentially reducing risk for lenders by offering early repayment at a slightly lower interest rate.
Shares
- Businesses can raise funds by selling shares.
Crowdfunding
- Crowdfunding is a method of raising funds through multiple small investments from the public.
Overdrafts
- Overdrafts are short-term loans that allow businesses to go into debt increasing spending flexibility but at higher interest rates.
Trade Credit
- Businesses can extend credit terms to customers allowing deferred payments on goods or services.
Leasing
- Leasing assets provides for the use of assets without owning them, potentially lowering upfront capital outlay.
Microfinance Providers
- Microfinance providers offer loans with potentially higher interest rates to businesses with higher risks.
Business Angels
- Business Angels are affluent individuals who invest in specific sectors or businesses.
Risk and External Funding
- External sources of finance are often preferred by businesses because they often carry lower risk and are easier to acquire funding.
- Internal sources of funds are generally more difficult to obtain.
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Description
Explore various sources of finance that businesses can utilize to fund their operations and growth. This quiz covers personal funds, asset sales, leasebacks, retained profits, and external financing options like loans and crowdfunding. Test your knowledge on how businesses can strategically manage their finances.
