3.2 Sources of Finance

Question 1

Internal Finance

Answer 1

> Self-sufficient funding
Comes from business
When requirement of funding is limited
Personal funds, retained profits, sale of assets

Question 2

External finance

Answer 2

> From outsider investors (shareholders, lenders) who expect percentage of business ownership or interest
When requirement of funding is large

Question 3

Personal funds

Answer 3

Any funds you borrow/receive/have under your own name

Question 4

Retained profit

Answer 4

Value of profits the business keeps to use within the organisation

Question 5

Share capital

Answer 5

The money that a company raises by selling common/preferred stock to investors

Question 6

Loan capital

Answer 6

Medium to long term sources of finance obtained from commercial lenders (e.g. banks)

Question 7

Overdrafts

Answer 7

Financial service allowing businesses to temporarily overdraw on bank account

Question 8

Trade credit

Answer 8

Agreement where a business can buy a product without paying upfront and paying the supplier at a later date

Question 9

Crowdfunding

Answer 9

Raising finance from a large group of individuals for a small amount of money

Question 10

Leasing

Answer 10

Temporary transfer of assets

Question 11

Microfinance providers

Answer 11

Bank service provided to low income individuals/groups who would otherwise have no access to financial services

Question 12

Debt financing

Answer 12

Raising capital by borrowing money from a lender/bank to be repaid alongside interest

Question 13

Equity financing

Answer 13

Raising capital through sale of shares

Question 14

Matching principle

Answer 14

Accounting principle that states that companies report expenses at the same time with its related revenues