Chapter 19 - Business Finance: Needs & Sources

Question 1

Start-Up Capital

Answer 1

The capital needed by an entrepreneur when first starting a business

Question 2

Working Capital

Answer 2

The capital needed to finance the day-to-day running expenses and pay the short term debts of a business

Question 3

Non-current Assets

Answer 3

Resources owned by a business which will be used for a period of time longer than 1 year.
Eg: Land, Vehicles, Machinery

Question 4

Capital Expenditure

Answer 4

Spending by a business on non-current assets such as machinery, etc.

Question 5

Long Term Finance

Answer 5

Debt or equity used to finance the purchase of non-current assets or expansion plans. Long term debt is borrowing that a business does not expect to repay in less than 5 years

Question 6

Short Term Finance

Answer 6

Loans or debts that a business expects to pay back within 1 year

Question 7

Retained Profits

Answer 7

Profit remaining after all expenses, taxes and dividends have been paid and which is ploughed back into the business

Question 8

Overdraft

Answer 8

An agreement with the bank which allows a business to spend more money that it has in its account to an agreed limit.
The loan has to be repaid within 12 months

Question 9

Trade Receivables

Answer 9

Amount owed to a business by its customers who bought goods on credit

Question 10

Debt Factoring

Answer 10

Selling trade receivables to improve business liquidity

Question 11

Bank Loan

Answer 11

Provision of finance by a bank which the business will repay with interest over an agreed period of time

Question 12

Leasing

Answer 12

Obtaining the use of anon-current asset by paying a fixed amount per time period for a fixed period of time.
Ownership remains with the leasing company

Question 13

Hire Purchase

Answer 13

The purchase of an asset by paying a fixed repayment amount per time period over an agreed period of time.
The asset is owned by the purchasing company on completion of the final payment

Question 14

Mortgage

Answer 14

A long term loan used for the purchase of land or buildings

Question 15

Debenture

Answer 15

A bond issued by a company to raise long term finance usually at a fixed rate of interest

Question 16

Share Issue

Answer 16

A source of permanent capital available to limited liability companies

Question 17

Equity Finance

Answer 17

Permanent finance provided by the owners a limited company

Question 18

Micro-Finance

Answer 18

Small amounts of capital loaned to entrepreneurs in counties where business finance is often difficult to obtain.
These loans are usually repaid after a relatively short period of time

Question 19

Crowd-Funding

Answer 19

Financing a business idea by obtaining small amounts of capital from a large number of people - most often using the internet and social media networks