The Main Sources Of Finance:
Overview
Every business needs money: to start up, to pay day-to-day bills, and to grow. But where should that money come from? Borrow it, raise it from owners, sell shares, or use profit the business has already made? Each source has a cost and a catch, and choosing the wrong one can be as damaging as having no finance at all.
In this lesson you will sort the main sources of finance into internal and external, and short-term and long-term, meet newer options such as micro-finance and crowdfunding, and learn the factors that decide which source is best. By the end you will be able to recommend and justify a source of finance for a given business.
Objectives
- Internal sources and external sources with examples
- Short-term and long-term sources with examples, e.g. overdraft for short-term finance and debt or equity for long-term finance
- Importance of alternative sources of capital, e.g. micro-finance, crowd-funding
- The main factors considered in making the financial choice, e.g. size and legal form of business, amount required, length of time, existing loans
- Recommend and justify appropriate source(s) of finance in given circumstances
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Lesson Evaluation
Congratulations on completing the lesson on The Main Sources Of Finance:. Now that youve explored the key concepts and ideas, its time to put your knowledge to the test. This section offers a variety of practice questions designed to reinforce your understanding and help you gauge your grasp of the material.
You will encounter a mix of question types, including multiple-choice questions, short answer questions, and essay questions. Each question is thoughtfully crafted to assess different aspects of your knowledge and critical thinking skills.
Use this evaluation section as an opportunity to reinforce your understanding of the topic and to identify any areas where you may need additional study. Don't be discouraged by any challenges you encounter; instead, view them as opportunities for growth and improvement.
- Which is an internal source of finance? A. a bank loan B. retained profit C. a share issue D. a government grant Answer: B
- Which source of finance is available only to limited companies? A. owner's savings B. issue of shares C. overdraft D. trade credit Answer: B
- The most suitable source to cover a short-term cash shortage is: A. a 25-year debenture B. an overdraft C. a new share issue D. selling the factory Answer: B
- Raising finance from many people who each invest a small amount online is called: A. factoring B. crowdfunding C. leasing D. hire purchase Answer: B
- A general rule when choosing finance is to match the source to the: A. colour of the product B. use and time period of the need C. number of competitors D. weather Answer: B
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