Section 3 - 3.1 Sources Of Finance

Question 1

Business Angels

Answer 1

Are wealthy entrepreneurs who risk their own money by investing in small to medium size businesses that have high growth potential

Question 2

Capital expenditure

Answer 2

Is investment spending on fixed assets such as the purchase of land and buildings

Question 3

Debt factoring

Answer 3

Is a financial service whereby a factor collects debts on a half of other businesses, in return for a fee

Question 4

External sources of Finance

Answer 4

Means getting funds from outside the organization e.g. Through debt, overdraft and debentures, share capital or the government

Question 5

Grants

Answer 5

Are government financial gifts to support business activities. They are not expected to be repayed by the recipient

Question 6

Initial public offering (IPO)

Answer 6

Refers to a business converting it’s legal status to a public limited company by floating its shares of a stock exchange for the first time

Question 7

Internal sources of finance

Answer 7

Means getting funds from within the organization e.g. through personal funds, retain profits and the sale of assets

Question 8

Leasing

Answer 8

Is a form of hiring whereby a contract is agreed between a leasing company (the lessor) and the customer(the lessee). The lessee pays rental income to higher assets from the lessor, who is the legal owner of the assets

Question 9

Loan capital

Answer 9

Refers to medium to long-term sources of interest bearing finance obtained from commercial lenders. Examples include mortgages business development loans and debentures

Question 10

Overdrafts

Answer 10

Allow a business to spend an excess of the amount in its bank account up to a predetermined limit. They are the most flexible form of borrowing in the short term

Question 11

Retained profit

Answer 11

Is the value of Surplus that’s a business keeps to use within the business after paying corporate taxes on its profits to the government and dividends to its shareholders

Question 12

Revenue expenditure

Answer 12

Refers to spending on the day-to-day running of a business such as rent, wages and utility bills

Question 13

Sale-and-leaseback

Answer 13

Is a source of external finance involving a business selling a fixed asset ( such as its computer systems or a building)but immediately leasing the assets back. In essence the lessor transfer his ownership to the lesser but the asset does not physically leave the business

Question 14

Share capital

Answer 14

Is the money raised from selling shares in a limited liability company, from its initial public offering and any subsequent share issues

Question 15

Share issue

Answer 15

Exists when an existing public limited company raises for the finance by selling more of its shares

Question 16

Sources of finance

Answer 16

Is the general term used to refer to where or how businesses obtain that funds, such as from personal funds, retained profits, loans and government grants

Question 17

Subsidies

Answer 17

Are funded by the government to lower affirms production costs as output provides extended benefit to society, e.g. Farmers are often provided with subsidies to stabilize food prices

Question 18

Trade credit

Answer 18

Allows the business to ‘by now and pay later’. The credit provider does not receive any cash from the buyer until a later date (usually allow between 30-60 days.)

Question 19

Venture capital

Answer 19

Is high risk capital invested by Venture Capital fans, usually at the start of a business idea. The finance is usually in the form of loans and/or shares in the business venture