Raising Finance

Question 0

Business Angel

Answer 0

An affluent individual who provides capital for a business start-up, usually in exchange for convertible debt or ownership equity

Question 1

Assets

Answer 1

Items that are owned and controlled by the business, they may be used as collateral against a loan

Question 2

Debt Factoring

Answer 2

The sale of a business’ invoices to a third party, the third party is charged with processing the invoices, and the business selling the invoices receives payment of 80-90% of the invoice value

Question 3

Hire Purchase

Answer 3

A method of buying goods through making instalment payments over time. Under a hire purchase contract, the buyer is leasing the goods and does not obtain ownership until the full amount of the contract is paid

Question 4

Interest

Answer 4

The cost of borrowing funds and the return to savers

Question 5

Inventory

Answer 5

The stock of goods held for re-sale, these are one of the current assets of a business

Question 6

Leasing

Answer 6

A legal document outlining the terms under which one party agrees to rent property from another party. A lease guarantees the lessee (the renter) use of an asset and guarantees the lessor (the property owner) regular payments from the lessee for a specified number of months or years

Question 7

Loan

Answer 7

Medium to long term finance, usually obtained from banks and which is repayable with interest

Question 8

Mortgage

Answer 8

A type of loan supported with collateral or a specific property asset

Question 9

Retained Profit

Answer 9

The amount of profit left over after all trading costs, overhead costs, taxation and dividends have been deducted from the sales revenue

Question 10

Sale and Leaseback

Answer 10

The process of selling fixed assets to raise cash. The business loses ownership of the asset but retains use of the asset by paying for the lease

Question 11

Share Capital

Answer 11

The value of the sum invested in the company by ordinary and preference shareholders. As these investors cannot get their money back from the firm, the managers know that they can rely on these funds

Question 12

Shareholders

Answer 12

Investors who are part owners of a business. Their liability is limited to the sum invested

Question 13

Trade Credit

Answer 13

A short-term source of finance in which the business obtains goods and services from another business without paying for then immediately

Question 14

Venture Capitalist

Answer 14

Specialist finance providers invest in small/risky ventures in return for a share of businesses ownership or a share of eventual profits

Question 15

Working Capital

Answer 15

This means reducing stocks, chasing up debtors more quickly or delaying payment to creditors, an internal source of finance

Question 16

Overdraft

Answer 16

A temporary arrangement allowing the business to draw out more money than is in its account up to an agreed limit