External sources of finance: Debt (short term sources)

Question 1

What is an overdraft

Answer 1

When the bank lets you take out (overdraw) more money than you have in your account. It’s up to a set limit. Interest is also lower than other loans.

Question 2

What is a commercial bill

Answer 2

A big loan (100k+) that lasts about 30 days. This loan is backed by an asset. If the business can’t pay the loan they can extend it.

Question 3

What is factoring

Answer 3

Factoring is when a business sells the money people owe it (accounts receivable) to another company for less than its word. The business can get up to 90% of the money quickly, usually within 48 hours.