3.5.3 Choosing Sources of Finance

Which of the following is NOT a source of internal finance?

• Retained profit

• Selling assets

• Bank loans

• Shareholder investments

What is the main benefit of using retained profit for investment?

• It does not require paying interest on the money

• It is always available in large amounts

• It can be used to pay dividends

• It is a form of external finance

Which of the following is a disadvantage of retaining profits?

• It can be used for later investment

• It may cause the business to miss out on investment opportunities

• It does not require paying interest

• It is a form of internal finance

What is rationalisation in the context of business finance?

• Borrowing money from banks

• Reorganising the business to make it more efficient

• Selling shares to raise capital

• Using retained profits for investment

Which of the following is a disadvantage of selling assets as a form of finance?

• It introduces another cost to the business

• It is a form of internal finance

• It does not require paying interest

• It is suitable for long-term finance

What is an overdraft in the context of business finance?

• A loan from shareholders

• A negative amount of money in a bank account

• Selling assets to raise capital

• Retained profit used for investment

Which of the following is a disadvantage of overdrafts?

• They are easy to arrange and flexible

• They charge high rates of interest

• They are suitable for long-term finance

• They do not require paying interest

What is debt factoring?

• Selling assets to raise capital

• Using retained profits for investment

• Banks and financial institutions taking unpaid invoices off the hands of the business

• Borrowing money from shareholders

What is the main advantage of debt factoring?

• It is a form of internal finance

• It allows businesses to instantly get money they are owed

• It does not require paying interest

• It is suitable for long-term finance

Which of the following is an advantage of bank loans?

• The bank can demand the money back at any time.

• You have to give the bank a share of the profits.

• The interest charges for a loan are usually lower than for an overdraft.

• The bank owns a part of your business.