| name the 10 private sector sources of finance | owners equity, bank loan, grant, reinvested profits, mortgage, leasing, hire purchase, bank overdraft, trade credit, issuing shares |
| describe owners equity | for sole traders and partnerships only, this is the money invested by the owner/partner into the business |
| what are the advantages of owners equity as a source of finance? | the money doesn't have to be repaid, no interest has to be paid |
| what are the disadvantages of owners equity as a source of finance? | there may be insufficient money to fund the business |
| describe bank loans as a source of finance | money from the bank which has to be repaid with interest over an agreed number of years |
| what are the advantages of bank loans as a source of finance | the money can be obtained in one lump sum, repayments can be spread over several years so budgeting is easier |
| what are the disadvantages of bank loans as a source of finance | interest has to be paid, small businesses may find it hard to obtain a bank loan and may have to pay higher rates of interest |
| describe grants as a source of finance | money received form the Local Council, government, EU, or lottery for a specific purpose |
| what are the advantages of grants as a source of finance | the money doesn't have to be repaid, a large amount of money can be received at one time |
| disadvantages of grants as a source of finance | there may be certain restrictions as to what hte money can be used for, time consuming and complex application process |
| describe reinvested profits as a source of finance | profit leftover at the end of the year that has not been shared with owners |
| advantages of reinvested profits as a source of finance | there are no extra costs eg interest to be paid |
| disadvantages of reinvested profit as a source of finance | there may be insufficient money to fund the business |
| describe mortgage as a source of finance | a loan specifically for the purchase of property |
| advantages of mortgage as a source of finance | amount can be repaid over a long period of time, such as 25 years |
| disadvantages of mortgage as a source of finance | interest has to be paid, if repayments are not made then the property may be repossessed |
| describe leasing as a source of finance | paying a monthly fee for the use of equipment/vehicles (asset) |
| what are the advantages of leasing as a source of finance | can obtain the asset without a large financial outlay, repairs are carried out by the leasing company as part of the agreement, can keep upgrading to the latest models/versions |
| what are the disadvantages of leasing as a source of finance | the business will never own the asset, may end up paying more in the long run than purchasing the asset |
| describe hire purchase as a source of finance | buying an asset and paying it back over several (eg 48 or 60 months). An initial down payment is normally required |
| what are the advantages of hire purchase as a source of finance | allows businesses to buy assets without needing the full amount up front, once full payments have been made the asset is owned |
| disadvantages of hire purchase as a source of finance | the asset is not fully owned until the last payment is made, the total paid is more than the value of the asset due to interest charges |
| describe bank overdraft as a source of finance | withdrawing more money from your bank account than you have available |
| advantages of bank overdraft as a source of finance | useful as a short term source of finance to overcome cash flow problems, you are not tied into an agreement which requires repayment over several years |
| disadvantages of bank overdraft as a source of finance | an expensive form of borrowing with high interest charges, additional costs incurred if not pre arranged with the bank |
| describe trade credit as a source of finance | when goods and materials can be bought from suppliers but are not paid for until a later date (eg 30 days credit) |
| advantages of trade credit as a source of finance | can buy goods and sell them on before payment is required, provided payment is made within the agreed number of months then no interest is charged |
| disadvantages of trade credit as a source of finance | may lose out on prompt payment discounts, may gain a reputation as a slow payer |
| describe issuing shares as a source of finance | for private limited companies only, selling shares to friends and family in return for part ownership of the company |
| advantages of issuing shares as a source of finance | large amounts of additional finance can be raised |
| disadvantages of issuing shares as a source of finance | dividends have to be paid which reduces the retained profit for the company, new shareholders will have a say in how the business is run and so ownership is diluted |
