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| Question | Answer |
| Name 4 internal sources of finance | 1. Personal sources 2. Retained profits 3. Share capital invested by the entrepreneur 4. Sale of assets |
| What are 3 advantages of using personal sources? | 1. Owner remains in control 2. Flexible and the lowest cost 3. Builds personal commitment to the startup |
| What are 3 disadvantages of using personal sources? | 1. Opportunity cost 2. Entrepreneur's personal funds at risk 3. May be limited |
| Name 5 external sources of finance | 1. Share capital from outside investors 2. Friends and family 3. Bank loan 4. Bank overdraft 5. Grants and other government incentives |
| What are 3 advantages of using retained profits? | 1. Cheap and highly flexible 2. No loss of business control 3. Potentially large if profits are strong |
| What are 2 disadvantages of using retained profits? | 1. External shareholders may want a dividend 2. Startups struggle to reach profitability |
| What are 2 advantages of a bank overdraft? | 1. Flexible short-term source of finance 2. Only used when needed |
| What are 2 disadvantages of using a bank overdraft? | 1. Expensive - high rate of interest 2. Repayable to bank on demand |
| What are 2 advantages of using a bank loan? | 1. Longer-term finance and more secure 2. No effect on ownership |
| What are 3 disadvantages of using a bank loan? | 1. Hard for a startup to obtain (Banks don't like risks) 2. Interest payable on entire amount 3. Bank may require security (collateral) |
| What are 2 advantages of using a business angel? | 1. Potentially significant source of external finance 2. Angel's expertise and contacts can benefit a business |
| What are 2 disadvantages of using a business angel? | 1. Loss of control 2. Longer and more complex finance raising process |
| What are 2 advantages of using friends and family as a source of finance? | 1. Flexible and potentially significant 2. Doesn't have to mean a loss of control (e.g. loan) |
| What are 2 disadvantages of using friends and family as a source of finance? | 1. Potential for personal tensions & disputes 2. May want some control or influence over decisions |
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