1.4.3 Types & Sources Of Credit & The Impact Of Credit Within The Economy Flashcards
What is a loan
Involves borrowing money from elsewhere for a short period of time. It is then repaid over time with interest.
What is an overdraft
It allows a consumer/ firm to temporarily borrow from the bank by spending more than is saved in the account
Advantages of an overdraft
Include the amount borrowed is flexible & interest rates is only paid on the amount of money borrowed
Disadvantages of overdrafts
They cannot be used for large loans & the interest rate is much higher than on a loan
What is a trade credit
The credit which is extended to a firm by suppliers, so a good can be bought immediately & paid later
What is venture capital
Funding from specialist firms in return for a share in company
What is a share capital
This can be raised by selling shares to investors
What is leasing
Is a long term agreement for rent that allows firms to use an asset w/o paying the full amount up front
What is the owner’s capital: personal savings
Is the amount of money that an owner has available to put into the firm
What is retained profit
This is the money left after deduction, taken from total sales revenue
What is sale of assets
When a firm sells its assets
E.g. buildings
Individual investors
Friends & family can make up the individual investors which help finance the business
Online collaborative funding
Involves raising funds from several people/ crowd, & it’s usually conducted through the internet
What is the role & impact of credit on the economy
It is difficult & takes a long time to build up a strong credit rating
