2.1 Raising Finance Flashcards
OVERDRAFT
A flexible source of finance mainly used to ease short-term cash flow problems. Ideal for businesses that have seasonal sales.
BANK LOAN
A bank loan is a long term source of finance. It is a fixed amount of money that is given to a business by the bank that has to be repaid over time with interest, usually in monthly instalments.
TRADE CREDIT
Where a supplier allows you to purchase goods and pay the amount later, usually around 30 days. It delays the amount of cash leaving the business.
FRIENDS AND FAMILY
May allow you to borrow money that may be refused elsewhere, but could put strain on relationships.
LEASING
Usually for items like photocopiers/ cars. The business never owns the asset but they pay regular ‘rental’ payments to ‘own’ it.
DEBT FACTORING
Where a business sells its debt to someone else pays a fee for that person to collect/ pay it on their behalf.
MORTGAGE
It is a sum of money borrowed from the bank that is secured against a property and paid back in instalments, usually over a long period of time- around 25 years.
SALE & LEASEBACK
When a company sells its assets to another company and leases them back for less.
GRANTS
A sum of money usually awarded by the council/ government for a specific project or purpose.
CROWDFUNDING
Crowdfunding is a method of raising funds for a business or project by collecting relatively small amounts of money from a large number of contributors. Money is sometimes given in exchange for a reward/ share or simply as a donation.
OWNERS SAVINGS
When a business owner uses their own personal savings to finance their business/ start-up.
SHARE CAHPITAL
Share capital is the total amount of money that a company raises by issuing shares to its shareholders.
RETAINED PROFIT
Are profits made by a business that are then reinvested back into the business to buy stock/ pay wages or shareholders.
SALE OF ASSETS
Where a business sells some or all of its property. This is typically done when a business is closing or selling itself.
VENTURE CAPITAL
Venture capital (VC) is a form of private equity and a type of financing that investors provide to start-ups and small businesses that have high growth potential or have demonstrated high growth.
CREDIT CARD
Useful for purchasing items of lower value however the interest rate is extremely high
PEER TO PEER LENDING
Peer-to-peer (P2P) lending is a form of financial technology that allows individuals to lend or borrow money from one another without going through a bank.
EQUITY
When funds are given to a company in return for a “share” of the business- there’s no obligation to pay the money back.
DEBT (liability)
When the entrepreneur MUST pay the money back.
Revenue Expenditure:
Items bought in order to be able to create products and generate revenue. Regularly purchased so that the business can continue trading.
Capital Expenditure:
Items bought so the business can begin to function, usually a one off large purchase.
Internal source of finance
Finance coming from within the business, profit, savings
External source of finance
Finance that comes from outside the business, loans, grants
Reward crowdfunds
when people are given rewards in return for their money, such as shares
