TOPIC 3.1: Business Finance - Sources

What is the definition of internal sources of finance?

• A) Money borrowed from banks

• B) Money that comes from within the business itself

• C) Money raised by selling shares to the public

• D) Money from venture capital firms

• E) Money from crowdfunding platforms

B - Money that comes from within the business itself

Which of the following is a short-term need for finance?

• A) Buying a new factory building

• B) Purchasing new machinery

• C) Paying suppliers for raw materials

• D) Expanding into a new country

• E) Launching a new product range

C - Paying suppliers for raw materials

Personal savings as a source of finance is classified as:

• A) External finance

• B) Short-term finance

• C) Internal finance

• D) Long-term finance

• E) Venture capital

C - Internal finance

What is retained profit?

• A) Profit given to shareholders as dividends

• B) Profit kept back in the business for reinvestment

• C) Profit paid to the government as tax

• D) Profit used to pay employee bonuses

• E) Profit spent on marketing

B - Profit kept back in the business for reinvestment

Selling assets to raise finance means:

• A) Buying new equipment for the business

• B) Selling items the business owns to raise money

• C) Borrowing money from a bank

• D) Issuing new shares to investors

• E) Taking out a mortgage on property

B - Selling items the business owns to raise money

Which of the following is an external source of finance?

• A) Personal savings

• B) Retained profit

• C) Selling assets

• D) Bank loan

• E) Depreciation

D - Bank loan

A bank overdraft allows a business to:

• A) Borrow a large amount for many years

• B) Spend more money than is in their account up to an agreed limit

• C) Sell shares to the public

• D) Receive investment from venture capitalists

• E) Raise money through crowdfunding

B - Spend more money than is in their account up to an agreed limit

Trade payables refer to:

• A) Money owed to the business by customers

• B) Money the business owes to suppliers for goods bought on credit

• C) Money invested by shareholders

• D) Money borrowed from the bank

• E) Money kept as retained profit

B - Money the business owes to suppliers for goods bought on credit

Share capital is finance raised by:

• A) Borrowing from a bank

• B) Selling ownership shares in the company

• C) Using personal savings

• D) Selling company assets

• E) Taking out an overdraft

B - Selling ownership shares in the company

What is a stock market flotation?

• A) When a business borrows money from a bank

• B) When a private limited company becomes a public limited company and sells shares on the stock exchange

• C) When a business sells its assets to raise cash

• D) When a business uses retained profit for expansion

• E) When a business takes out an overdraft

B - When a private limited company becomes a public limited company and sells shares on the stock exchange

Venture capital is typically provided to:

• A) Established businesses with low risk

• B) High-risk, high-growth businesses

• C) Non-profit organisations

• D) Government-owned corporations

• E) Businesses that are about to close

B - High-risk, high-growth businesses

Crowdfunding involves:

• A) Borrowing a large amount from one bank

• B) Raising small amounts of money from a large number of people online

• C) Selling shares to institutional investors

• D) Using the owner's personal savings

• E) Selling company assets to competitors

B - Raising small amounts of money from a large number of people online

Money that comes from within the business itself is known as ____________________ sources of finance.

Internal

Profit kept back in the business instead of being distributed to owners is called ____________________ ____________________.

Retained profit

A ____________________ allows a business to spend more money than is in their account up to an agreed limit.

Overdraft

Money a business owes to suppliers for goods bought on credit is called ____________________ ____________________.

Trade payables

Money borrowed from a bank with interest over a set period is called ____________________ ____________________.

Loan capital

Raising money by selling ownership shares in the company is called ____________________ ____________________.

Share capital

When a private limited company becomes a public limited company and sells shares on the stock exchange, this is called a stock market ____________________.

Flotation

Investment from specialist companies who provide finance to high-risk, high-growth businesses is known as ____________________ ____________________.

Venture capital

Raising small amounts of money from a large number of people online is called ____________________.

Crowdfunding

What is the difference between short-term and long-term finance?

• Short-term finance - Used for day-to-day expenses, repaid within one year (e.g., overdraft, trade payables)

• Long-term finance - Used for major purchases/expansion, repaid over more than one year (e.g., bank loans, share capital)

What are the advantages of external finance?

• Larger amounts can be raised

• Access to expertise (e.g., venture capitalists)

• Spreads risk