29.3 Sources of finance Flashcards
Internal source
Raising finance from the businesses’ own assets or from profits left in the business.
External source
Raising finances from sources outside the business, for example, banks.
Retained earnings (retained profit)
Profit after tax retained in a company rather than paid out to shareholders or dividends.
Bank overdraft
Credit that a bank agrees can be borrowed by a business up to an agreed limit as and when required.
Debt factoring
Selling of claims over trade receivables (debtors) to a specialist organization (debt factor) in exchange for immediate liquidity.
Hire purchase
A company purchases an asset and agrees to pay fixed repayment over an agreed time period. The asset belongs to the purchasing company once the final payment has been made.
Leasing
Obtaining the use of an asset and paying a leasing charge over a fixed period, avoiding the need to raise long-term capital to buy the asset. The asset is owned by the leasing company.
Bank (long-term) loans
Loans that do not have to be repaid for at least one year.
Debentures
Long-term bonds issued by companies to raise debt finance, often with a fixed rate of interest.
Share capital
Permanent finance raised by companies through the sale of shares.
Business mortgages
Long term loans to companies purchasing a property for business premises, with the property acting as collateral security on the loan.
Venture capital
Risk capital invested in business start-ups or expanding small businesses that have good profit potential but do not find it easy to gain finance from other sources.
Microfinance
Providing financial services for poor and low-income customers who do not have access to the banking services offered by traditional commercial banks.
Crowdfunding
The use of a small amount of capital from a large number of individuals to finance a new business venture.
Rights issues
Existing shareholders are given the right to buy additional shares at a discounted price.
