86. Sources of finance – Long and Short Term
1. Missing Words.
Short term finance is when a business needs to borrow money for less than a year. Medium term finance is when money is needed for one to five years;. Long term finance is when money is needed for over five years. In addition there is share capital, which does not have to be paid back at all.
2. Multiple Choice
2.1 Steve owns a painting and decorating business. Steve needs to buy himself a new van as his old one has just broken down. Steve needs to raise £13,000 in order to purchase the new vehicle. From the list identify the two most likely sources of finance that Steve should consider.
a) Personal funds
b) Retained profits
c) Overdraft
d) Hire purchase
e) Share capital
f) Bank loan 2.2 Steve knows he is getting paid from a job he has done in three days time but he needs to buy some new supplies for his next job costing £150. Steve only has £30 in his bank account. From the list identify what he should do.
a) Ask his brother to lend him the money
b) contact the bank to arrange an overdraft
c) Use a debt factoring agency to pay
d) Take out a bank loan
e) Not buy the supplies.
3. True or False
Decide whether each of the following statements is true or false.
a) Banks will always allow a business to have an overdraft. T
b) If personal funds are available these should always be used first. F
c) Owners are best off securing their personal assets against a loan. T
d) Government grants can depend on the location of a business. T
e) A mortgage is the best