2. Sources of Finance Flashcards
Internal Sources of Finance
Internal sources of finance describe the money that is created or raised within a business.
Retained Profit
This is the profit that the business has effectively saved whilst it has been operating (running).
Personal Savings
This is personal money that is invested by the owner of a business
Selling Assets
A business can sell its assets to raise cash. For example, a business can sell buildings or machinery that they do not use.
External Sources of Finance
External sources of finance raise finance (money) from a third party.
Trade Credit
Trade credit describes when businesses pay suppliers at a later date. It involves buying something now and paying for it later.
Hire Purchases
This is when a business buys something and instead of paying for it upfront pays for it in instalments.
Bank Loans and Mortgages
A business borrows money from a bank and then pays interest on the money borrowed.
Share Capital
A business can sell share capital (some of its shares) to other people or businesses. They give away a percentage of the business in return for getting finance invested in the business.
Government Grants
A government may give grants (money) to businesses to research things that the government is interested in.
Loans From Family or Friends
Start-ups often use loans from family and friends. This is usually because the entrepreneur doesn’t have enough personal savings to finance the investment.
Venture Capital
Venture capital involves investors, or venture capitalists, providing a business with loans and share capital which is usually to support business growth.
Debt Factoring
Debt factoring involves businesses selling their debt to a third party business.
Overdraft
An overdraft is a service offered by banks allowing businesses to borrow an amount of money up to a limit which has been agreed in advance.
