chapter 6 Flashcards
what is a source of finance?
the way in which an enterprise gets the money it needs to finance an activity
what is finance?
the activities of an enterprise relating to money
what is a startup?
the period of an enterprise when it is first set up
what are internal sources of finance?
money that is found within the enterprise
what is interest?
often when an enterprise borrows money from a lender they will have to pay back the amount they borrow plus an agreed amount
additional amount known as interest.
why would a business need money?
buy or rent premises, purchase equipment
introducing a new product or service or replacing old inefficient equipment
why is it important that enterprises use the right sources of finance for the situation?
so they do not end up with financial difficulties
what is personal savings? (internal source of finance) advantages and disadvantages
a small investment in a business, normally paid back with interest
you do not need approval and you can get your money back plus interest, but if you are unsuccessful you may lose all your money
what is investment from family and friends? advantages and disadvantages
a small investment in a business normally paid back with interest
family and friends will often be keen to support you and usually interest will be lower. you may lose their money though which can make them mad
what are bank overdrafts? advantages and disadvantages
a form of short term lending by the bank when there is no money left in the enterprise’s bank account
it can cover a short term issue but a very short term option’s interest is very high
what is leasing? advantages and disadvantages?
you rent a piece of equipment for a monthly fee but it belongs to the leasing company
this is cheaper than buying it short term and after a fixed time the equipment is often updated to the latest model
long term it can be expensive and be more than the equipment would’ve actually cost
what are mortgages? advantages and disadvantages
larger, longer term loan used to buy property and paid back at an agreed interest rate
large sums of money can be borrowed to buy property and generally a much lower rate of interest
but you need to give detailed financial info to get the mortgage approved. if you fail to make payments on the loan they could seize the property
what are community sources? advantages and disadvantages?
some community orgs. set up funds that can be used for projects IF they support the community
you can bring money into the community which improves the lives of people and don’t have to pay it back
but you can only spend the money on a community project and if you don’t use it as you agreed they can take it back
what are grants?
money offered to enterprises usually by governments for specific projects
it can bring income into enterprises for expensive projects and you don’t have to pay it back
you can only spend it on a specific project and they can take it back
what are subsidies?
a government will give it to a particular type of enterprise to support its development or for public benefit. it can be some kind of cash payment or a tax reduction
it will either bring cash into the enterprise or reduce their tax bill
only for available available for specific types of enterprise. the enterprise may have to meet certain conditions in order to get the subsidy.
