Learning Aim D: Personal & Business Finance

Question 1

A source, either within or outside of a business, from which a business can get access to money

Answer 1

Source of Finance

Question 2

Obtained from within the business itself

Answer 2

Internal Finance

Question 3

Money raised from sources outside the business (e.g. share issue, leasing, bank loan)

Answer 3

External Finance

Question 4

Finance intended for repayment within 12 months. Usually intended for revenue expenditure, for example, purchasing stock or paying short-term debts such as bills.

Answer 4

Short term finance

Question 5

Finance intended for repayment usually after 3 years or more. Usually intended for capital expenditure, for example, purchasing machinery, vehicles or premises.

Answer 5

Long term finance

Question 6

Profit which is kept back in the business and used to pay for investment in the business.

Answer 6

Retained Profit

Question 7

Current assets minus current liabilities. If you have positive net current assets, then this can be used by the business to fund day to day expenses.

Answer 7

Net Current Assets

Question 8

A business can sell assets that they have in order to receive a cash injection.

Answer 8

Sale of Assets

Question 9

Money invested in the business from the owner’s personal savings

Answer 9

Owners capital

Question 10

A large amount of money borrowed from a financial institution, to be repaid with interest.

Answer 10

Loan

Question 11

Raising money for a project or venture by obtaining many small amounts of money from many people often through websites.

Answer 11

Crowdfunding

Question 12

Loans from banks and building societies that are used to buy land and buildings such as offices and shops. Usually over 25 years.

Answer 12

Mortgages

Question 13

Finance is provided in exchange for a share of the company (equity) and future profits in the form of dividends. Normally a mix of loan & share capital.

Answer 13

Venture Capital

Question 14

A business will sell its debts or invoices which have not yet been collected from another company/customer (i.e., invoices) to a third party (called a factor) at a discount, for example 85 per cent, in exchange for immediate cash.

Answer 14

Debt Factoring

Question 15

This is used to purchase an asset, such as a delivery van or piece of equipment. You pay for the asset in regular installments but own the asset at the end.

Answer 15

Hire Purchase

Question 16

Obtaining the use of equipment or vehicles and paying a rental or leasing charge over a fixed period. this avoids the need for the business to raise long-term capital to buy the asset. Ownership remains with the leasing company.

Answer 16

Leasing

Question 17

Business to business arrangement, when a business can get goods, without paying up front

Answer 17

Trade Credit

Question 18

This is a fixed amount of money usually awarded by the government, EU (European Union) or charitable organisations.
These are given to a business on the condition that they meet certain criteria such as providing jobs in areas of high unemployment.

Answer 18

Grants

Question 19

These are an extremely important source of finance for a non-profit organisation such as a charity or social enterprise. These are relied upon for the continual running and day to day upkeep of such organisations.

Answer 19

Donations

Question 20

This is a way for people to lend money to individuals or businesses. The lender lends their money to an organisation or individual. In return the lender receives interest on top of the amount lent out.

Answer 20

Peer to Peer Lending

Question 21

This is a form of short-term borrowing against your outstanding invoices. It is usually used to help improve a company’s working capital and cash flow position. Invoice discounting gives you access to the money in unpaid customer invoices much faster. Instead of waiting for your customers to pay your invoices, you take out a short-term loan from an invoice discounting company.

Answer 21

Invoice Discounting