Chapter 25: Sources Of Finance (Version) Flashcards
Unit 3
What is short-term finance?
Money borrowed for one year or less.
What is short-term finance needed for?
Finance needed for day-to-day business expenses.
Instalment
One of a series of regular payments made until all the money owed has been repaid.
Why might a business need short-term finance?
To cover costs like wages, raw materials, and utilities when revenue is insufficient.
What is long-term finance?
Money borrowed for more than one year.
What is long-term finance used for?
Finance used for large expenses like buying property or equipment.
What is start-up capital?
Initial funds needed to start a business, covering costs like equipment, legal fees, and marketing.
Why do businesses need finance for expansion?
To increase capacity, develop new products, enter new markets, or diversify operations.
What are internal sources of finance?
Finance generated by the business from its own means.
How do personal savings contribute to business finance?
Entrepreneurs invest their own money, which may come from savings, redundancy pay, or family support.
What is retained profit?
Profit held by a business rather than returning it to the owners and which may be used in the future.
What are the advantages of retained profit?
It is a cheap and flexible source of finance with no interest or repayment obligations.
What are external sources of finance?
Funds obtained from outside the business.
What is a bank overdraft?
Agreement with a bank where a business spends more than it has in its account, with interest charged on the overdrawn amount.
What are the risks of using a bank overdraft?
The bank can demand repayment at any time, and interest rates can be high.
What are trade payables & their advantage?
Buying resources from suppliers and paying for them at a later date, holding onto cash longer.
What are the disadvantages of trade payables?
Suppliers may charge higher prices or offer discounts for early payment, making delayed payment costly.
How do businesses use credit cards for finance?
They provide short-term funding for purchases, but interest rates are high if not repaid within the credit period.
What is loan capital?
Money borrowed from a bank or other institution, repaid in instalments with interest.
What is the difference between secured and unsecured loans?
Secured loans require collateral, while unsecured loans do not but have higher interest rates.
What is a mortgage?
A long-term loan secured against property.
What is a debenture?
A fixed-interest loan issued by a company, repaid on a set date & secured against assets, often used by public limited companies.
What is hire purchase?
A method of buying assets with a down payment and instalments; ownership transfers after full payment.
Hire purchase
Buying specific goods with a loan, often provided by a finance house.
What are the risks of hire purchase?
If payments are missed, the asset can be repossessed, and costs may be higher than a bank loan.
What is share capital?
Money raised by selling shares in a company, avoiding interest payments but requiring dividends for shareholders.
What is a rights issue?
Sale of new shares to existing shareholders at a discount.
What are venture capitalists?
Specialist investors who provide money for business purposes, often to new or high-growth business.
Who are business angels?
Individuals who invest in startups in exchange for a stake in the business.
What is crowd funding?
Where a large number of individuals invest in a business venture using an online platform and therefore avoiding using a bank.
What are the advantages of crowd funding?
Can raise large amounts without traditional bank loans.
Assets
Resources used or owned by a business.
