Business Studies - AQA - GCSE - Sources of Finance

Business Studies - AQA - GCSE - Sources of Finance

1. Personal Capital

   • Own money
     • Advantages
       • Flexible
       • Potential to raise large amounts
     • Disadvantages
       • Shareholders expect a return

2. Retained profit

   • Profit from previous months from business
     • Disadvantages
       • Could be spent elsewhere
       • Profit is lost if business fails
     • Advantages
       • No interest rates

3. Loan

   • Receiving money to pay back later for an increased price (Due to interest)
     • Disadvantages
       • High interest rates
       • Possible repossession
     • Advantages
       • Repayments can be spread out to ease pressure
       • Fairly flexible

4. Mortgage

   • A company takes the title of the debtor's property in exchange for finance
     • Disadvantages
       • Company can sell the building to repay the loan
       • High interest rates
     • Advantages
       • Loan

5. Overdraft

   • When the balance in the bank goes beneath zero but the user of the account can carry on spending, as long as they pay it back (with interest) afterwards
     • Disadvantages
       • High interest rates
       • Risk of losing possessions if not repaid
     • Advantages
       • No late payment penalties
       • Less paperwork
       • Flexible (when you need it)

6. Leasing

   • "Renting" the assets that are needed, small regular payments rather than one lump sum, never actually owning.
     • Disadvantages
       • Cannot sell the asset
       • Do not own it
     • Advantages
       • Repairs done by leasing company
       • Usually up to date equipment

7. Factoring

   • Selling accounts to a third-party funding source to raise capital
     • Disadvantages
       • Reduces allowances for other borrowing
       • Restrict funding
     • Advantages
       • Prices usually low
       • Smoothens cashflow
       • Immediate

8. Hire purchase

   • Buying whilst using it, paying is smaller regular payments rather than one lump sum

9. Venture capital

   • Investors money (for a percentage of the business)

10. Share issues

    • Selling shares to new shareholders

11. Grant

    • Government funding
      • Advantages
        • Don't have to pay back
      • Disadvantages
        • Feel like a slave to the government

12. Gifts

    • From friends and family

13. Sale of assets

    • Selling belongings (business/personal)

14. Trade credit

    • Use it now, buy it later
      • Advantages
        • No cash necessary immediately
        • Induces more sales over time
      • Disadvantages
        • High costs afterwards
        • Chance of debt

15. Credit Card

    • Set balance on the card each month, anything spent must be paid back

16. Debenture

    • Long-term loan

17. Selling stock

    • Selling the produce from the business