2.1 Raising Finance

Question 1

OVERDRAFT

Answer 1

A flexible source of finance mainly used to ease short-term cash flow problems. Ideal for businesses that have seasonal sales.

Question 2

BANK LOAN

Answer 2

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.

Question 3

TRADE CREDIT

Answer 3

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.

Question 4

FRIENDS AND FAMILY

Answer 4

May allow you to borrow money that may be refused elsewhere, but could put strain on relationships.

Question 5

LEASING

Answer 5

Usually for items like photocopiers/ cars. The business never owns the asset but they pay regular ‘rental’ payments to ‘own’ it.

Question 6

DEBT FACTORING

Answer 6

Where a business sells its debt to someone else pays a fee for that person to collect/ pay it on their behalf.

Question 7

MORTGAGE

Answer 7

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.

Question 8

SALE & LEASEBACK

Answer 8

When a company sells its assets to another company and leases them back for less.

Question 9

GRANTS

Answer 9

A sum of money usually awarded by the council/ government for a specific project or purpose.

Question 10

CROWDFUNDING

Answer 10

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.

Question 11

OWNERS SAVINGS

Answer 11

When a business owner uses their own personal savings to finance their business/ start-up.

Question 12

SHARE CAHPITAL

Answer 12

Share capital is the total amount of money that a company raises by issuing shares to its shareholders.

Question 13

RETAINED PROFIT

Answer 13

Are profits made by a business that are then reinvested back into the business to buy stock/ pay wages or shareholders.

Question 14

SALE OF ASSETS

Answer 14

Where a business sells some or all of its property. This is typically done when a business is closing or selling itself.

Question 15

VENTURE CAPITAL

Answer 15

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.

Question 16

CREDIT CARD

Answer 16

Useful for purchasing items of lower value however the interest rate is extremely high

Question 17

PEER TO PEER LENDING

Answer 17

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.

Question 18

EQUITY

Answer 18

When funds are given to a company in return for a “share” of the business- there’s no obligation to pay the money back.

Question 19

DEBT (liability)

Answer 19

When the entrepreneur MUST pay the money back.

Question 20

Revenue Expenditure:

Answer 20

Items bought in order to be able to create products and generate revenue. Regularly purchased so that the business can continue trading.

Question 21

Capital Expenditure:

Answer 21

Items bought so the business can begin to function, usually a one off large purchase.

Question 22

Internal source of finance

Answer 22

Finance coming from within the business, profit, savings

Question 23

External source of finance

Answer 23

Finance that comes from outside the business, loans, grants

Question 24

Reward crowdfunds

Answer 24

when people are given rewards in return for their money, such as shares

Question 25

Donation crowdfunds

Answer 25

when people give money without the promise of a reward.

Question 26

Keep it all crowdfunding:

Answer 26

you keep all the funds you made even if you don’t meet the target.

Question 27

All or nothing crowdfunding

Answer 27

you only keep the funds raised if you meet your target.

Question 28

Short-term:

Answer 28

likely to be paid back within one year.

Question 29

Medium term:

Answer 29

likely paid back in 2-4 years.

Question 30

Long-term:

Answer 30

likely to be paid back with 5+ years or never.

Question 31

Finance is needed for:

Answer 31

Business set up.
Day to day trading.
Growth and development.

Question 32

Cash flow

Answer 32

the money that moves in and out of the business and is essential to pay debts.

Question 33

Profit- includes money that WILL be paid after a sale is made

Answer 33

the extent to which a business’s revenue exceeds its total costs of time and can be paid to the owners or reinvested.

Question 34

Debtors/ Receivables:

Answer 34

The amounts that are owed by customers- Asset

Question 35

Creditors/ Payables:

Answer 35

amounts owed to suppliers- Liability (we must pay)

Question 36

Inventories/ Stock:

Answer 36

Cash tied up in raw materials, work in progress and finished goods.

Question 37

Assets:

Answer 37

we OWN- bought machinery, paid off houses…

Question 38

Liabilities:

Answer 38

we OWE- rent, leasing, depreciation..

Question 39

Depreciation:

Answer 39

the reduction of value of something over time.