Sources Of Finace Flashcards
What is finance?
Finance is the capital needed to start up and run a business
The two types of finance?
Internal - capital found inside the business
External - capital found outside the business
Different sources of finance and their description:
Business angels- individuals that invest in high growth businesses.
Bank loan- they require interest to be payed on repayments.
Trade credit- when a supplier gives a customer a period of time to pay, usually 30 days.
Overdraft- the bank will allow the business to withdraw more than it has in its account but limited amount that can be withdraw.
Hire purchase- a business that rents machinery and after they’ve paid all of their monthly pays it is then theirs to keep.
Government grant- money given to a business for a particular reason.
Venture capital- buying shares in small companies at early stages of development.
Mortgages- loan from bank used to buy building or land. Normally last up to 30 years.
Advantage and disadvantages of the different sources of finance:
Business angels- a: they can give you advice, no interest. d: gives up a stake in your business.
Bank loan- a: large sum of money, get to repay in small amounts. d: pay interest, have to show business plan.
Trade credit- a: time to pay your bills, no interest, helps manage cash flow. d: hard for start ups, if don’t pay in time you can interest or fine.
Overdraft- a: bank has flexibility, only have interest if you go over. d: very high rates of interest, can be removed with no notice.
Hire purchase- a: lower interest. d: paying back more, contracted.
Government grant- a: don’t have to pay them back. d: have to write an application, likely too won’t be successful.
Venture capital- a: opportunity to expand, can provide advice. d: loose control over business, high interest.
Mortgages- a: get to own an asset, long time(monthly payment). d: you might loose your job and can’t repay, interest.
What is retained profit?
The amount of a business income
- long term
What is owners capital?
Amount of long term money put into the business to buy assets
What is share capital?
The money invested in a company by the share holders
What is sale and leaseback?
The owner of a property sells an asset and then leases in back from the buyer
What factors that influence the sources of finance chosen?
- how much money you have
- if you have a good credit rating
- speed to repay
- how successful business is
- type of business you are
- assets owned by the business
Why businesses need finance?
- rent or buying building
- vehicles or machinery
- market research
- stock
- advertising
Fixed costs
Something that stays the same as output changes
E.g salary, machinery
Variable costs
Something that changes as output changes
E.g stock, wages or utility bills
