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Qualifications Cambridge National Enterprise & Marketing Topic Area 5: Factors to consider when starting up and running an enterprise

5.2 Sources of capital

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Which term describes an online appeal where members of the public each give a small amount of money towards a target?
Crowdfunding
What is meant by 'business angel'?
An individual who invests money in an enterprise in return for a share of the business and its profits
What is the name for a lump sum provided by a bank that is repaid in monthly instalments with interest over a period of time?
A loan
What is meant by 'grants' as a source of capital?
A cash injection from a government or charity that does not usually need to be paid back
Which term describes using money that the owner has already put aside to finance a start-up, with no fees, interest or repayments to make?
Own savings
What is meant by 'friends and family' as a source of capital?
Money given or lent to a start-up by people the owner knows, which may be a gift or a loan
A loan is repaid with interest. What is meant by interest?
An extra amount charged for borrowing the money
In a crowdfunding appeal, what is meant by the funding target?
The amount of money the appeal is trying to raise
A crowdfunding appeal does not reach its funding target. What happens?
The money is returned to the investors and the business gets nothing
Why is a grant often an attractive source of capital for a start-up?
It does not usually have to be paid back
Which of the following is a disadvantage of using a grant as a source of capital?
Only certain types of business are eligible for the grant
Which of the following is an advantage of using your own savings to start a business?
There are no interest payments or fees to pay on the money
Which statement about money given by friends and family to a start-up is correct?
It may be given as a gift, which does not need to be repaid
Which of the following is a possible disadvantage of using a loan from a friend to start a business?
The arrangement may be unclear and cause disagreement or awkwardness
Which of the following is a disadvantage of using a bank loan to start a business?
The bank may ask for security that it can take if repayments are missed
A business angel offers to invest 15,000 pounds in a new enterprise. What will the owner have to do in return?
Give the angel a share of the enterprise and its profits
An enterprise that is already trading wants to expand. Which of the following uses of capital is linked to expansion?
Opening additional premises and increasing production
Which of the following is a disadvantage of using crowdfunding to raise capital?
The business idea may be copied by others before it is launched
Which of the following is an advantage of using a bank loan to start a business?
The repayment amount is fixed, so it is easy to budget for
Which of the following is a possible disadvantage of using own savings to start a business?
There may be no savings left for emergencies
Which of the following is an advantage of using a loan from friends or family to start a business?
Repayments can often be flexible, with little or no interest
Why might a start-up owner choose a business angel instead of a bank loan?
The angel can offer advice based on business experience
Which of the following is a disadvantage of accepting investment from a business angel?
The owner has to give up some control over decisions
Which of the following is an advantage of using crowdfunding to raise capital?
No interest has to be paid on the money raised