Sources Of Finance
Overview
Every commercial enterprise, from a market stall to a multinational retailer, needs money before it can trade. Whether the goal is buying initial stock, covering day-to-day expenses, or funding a major expansion, the source of that money shapes what the business can do and how much risk it carries.
In this lesson you will explore the full range of internal and external finance options, learn how to classify them by time horizon, and evaluate which source suits a given commercial situation. These are core skills tested across both Commerce papers.
Objectives
- Understand short-term finance: trade credit, overdraft, factoring, leasing, hire purchase
- Understand long-term finance: loans, debentures, crowdfunding, mortgages, owner's capital, venture capital, retained profit, ordinary and preference shares, government grant
- Understand the process of issuing shares and debt: the functions and role of stock exchanges, investors, equities, interest, dividend, yield, speculation
Mind map
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Flashcards
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Lesson Note
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Lesson Evaluation
Congratulations on completing the lesson on Sources Of Finance. Now that you've explored the key concepts and ideas, it's 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 of the following is an internal source of finance? A) Bank loan B) Retained profit C) Share capital D) Government grant Answer: B
- Trade credit is best described as: A) A loan from a bank to buy stock B) A supplier allowing a buyer to pay at a later date C) A government subsidy for importers D) An investment from a venture capitalist Answer: B
- Which source of finance results in the business eventually owning the asset? A) Leasing B) Bank overdraft C) Hire purchase D) Trade credit Answer: C
- A sole trader who wants to raise a large sum of money CANNOT use which of the following? A) Bank loan B) Personal savings C) Issuing shares on the stock exchange D) Crowdfunding Answer: C
- An overdraft is most suitable for: A) Buying a new factory B) Funding a 10-year expansion plan C) Covering a short-term cash flow gap D) Purchasing land for development Answer: C
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Recommended Books
Further learning from open sources
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Textbook section
Raising Long-Term Financing
What are the key differences between debt and equity, and what are the major types and features of long-term debt?
"Introduction to Business: Raising Long-Term Financing" by OpenStax, OpenStax, Rice University, licensed under CC BY 4.0 (https://creativecommons.org/licenses/by/4.0/). Source: https://openstax.org/books/introduction-business/pages/16-4-raising-long-term-financing. Access for free at https://openstax.org/books/introduction-business/pages/1-introduction
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Textbook section
Obtaining Short-Term Financing
What are the main sources and costs of unsecured and secured short-term financing?
"Introduction to Business: Obtaining Short-Term Financing" by OpenStax, OpenStax, Rice University, licensed under CC BY 4.0 (https://creativecommons.org/licenses/by/4.0/). Source: https://openstax.org/books/introduction-business/pages/16-3-obtaining-short-term-financing. Access for free at https://openstax.org/books/introduction-business/pages/1-introduction
Published by other organisations under open licences, credited as they ask. Links open their websites.
Practice Mock Questions
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