Sources of Finance Quiz

George is looking to expand his small business and is considering different ways to finance this growth. Identify 2 forms of internal sources of finance that George could use.

• Bank loan and overdraft

• Retained earnings and sale of assets

• Venture capital and crowdfunding

• Leasing and hire purchase

Alexander is planning to expand his startup and is looking for external sources of finance. Identify 2 forms of external sources of finance he could consider.

• Overdraft and lease

• Bank loan and venture capital

• Invoice discounting and Trade credit

• Debt factoring and hire purchase

Outline what is meant by the term "Invoice Discounting"?

• Selling invoices to a third party at a discount

• Offering a discount to customers for early payment

• Reducing the price of goods on an invoice

• Increasing the invoice amount for late payment

Outline what is meant by the term "Crowd Funding"?

• Raising small amounts of money from a large number of people via online platform

• Borrowing money from a large number of investors

• Selling shares to the public to raise funds

• Taking money from wealthy individuals

Outline what is meant by the term "Leasing"?

• Buying an asset outright

• Renting an asset for a period of time

• Buying an asset from third party and pay by installments

• Donating an asset to charity

Outline what is meant by the term "Grant"?

• A loan that must be repaid with interest

• A sum of money given by the government or organisation that does not need to be repaid

• A discount on future purchases

• A tax rebate

Outline what is meant by the term "Donation" in the context of external source of finance?

• Money that must be repaid

• A gift of money given without expecting anything in return.

• A payment for services rendered

• A tax deduction

Outline what is meant by the term "Debt Factoring"?

• Selling debts to a third party to improve cashflow and giving away the control of trade receivables

• Increasing the amount owed by a debtor

• Writing off bad debts

• Consolidating multiple debts into one

Advantages of using Hire Purchase to obtain assets.

• Immediate ownership and no interest charges

• Spreading the cost over time and eventual ownership

• No need for a deposit and lower total cost

• Immediate ownership and tax benefits

Advantages of using Leasing to obtain assets:

• Lower monthly payments, get to use the assets immediately and no maintenance costs

• Immediate ownership and tax benefits

• No need for a deposit and eventual ownership

• Higher resale value and lower interest rates