Finance Needs
Name one example of a short-term need for finance.
Buying raw materials / Paying bills / Day-to-day expenses.
What is the simplest internal source of finance?
Personal savings.
Name one short-term external source of finance.
Overdraft / Trade payables.
Your small bakery needs money to buy flour and sugar. Which source of finance is best?
Trade credit / Overdraft (short-term).
Trade credit is an internal source of finance.
False – It’s external
Name one example of a long-term need for finance.
Buying machinery / Expanding the building.
What does retained profit mean?
Profit kept in the business instead of distributed as dividends.
Which type of finance is borrowed from a bank and repaid with interest?
Loan capital.
Your business wants to buy new machinery worth $20,000. Which source is suitable?
Bank loan / Share capital (long-term).
Selling old company vehicles can raise internal finance
True
Which type of finance is usually needed to start a new business?
Start-up capital / Long-term finance.
Which internal source involves selling things the business owns to raise money?
Selling assets.
What is it called when a business raises money by selling shares to the public?
Share capital / Stock market flotation (PLC).
You don’t want to pay interest but need cash for small repairs. Which source works?
Retained profit.
An overdraft is a type of long-term finance
False – Short-term
Explain the difference between short-term and long-term finance needs.
Short-term is for immediate expenses; long-term is for growth or investment.
Why is using retained profit considered low-risk?
It doesn’t require repayment or interest.
What is venture capital, and why would a business use it?
Money from investors in exchange for part ownership; used for growth or high-risk businesses.
You want to open a new branch but don’t want to give away ownership. Which source is best?
Loan capital.
Share capital can be raised by private or public companies
True
Give an example of a finance need for expansion and explain which type of finance is suitable.
Opening a new branch → Long-term finance, such as loan capital or share capital.
Explain one advantage and one disadvantage of using internal finance.
Advantage – No interest; Disadvantage – Limited amount available.
Compare crowdfunding and bank loans as sources of finance.
Crowdfunding raises small amounts from many people online; bank loans are borrowed from one lender with repayment terms.
ou want to grow quickly, and an investor offers cash for part ownership. Which source is this?
Venture capital.
Venture capitalists expect to take part ownership of a company.
True