Sources Of Finance Flashcards
Internal sources of finance
Money available from within the business
-retained profit
-share issue
External sources of finance
Money available from outside of the business
-bank loans
-crowd funding
-family+friends
-overdraft
-share issue
-trade credit
Trade credit
A period of time which suppliers allow customers before payments must be made
Bank loan
An amount of money borrowed for a set period of time with an agreed repayment schedule which includes interest
Share issue
Finance raised through the sale of shares either privately or on a stock exchange
Overdraft
An agreement made with the bank to overspend on an account to an agreed limit
Retained profit
Funds kept within the business for reinvestment and growth rather than given to shareholders as dividends
Sale of assets
Selling items of value that are no longer needed by the business such as spare land
Collateral
An asset that a bank holds as secruity for the repayment of a loan
Mortgages
Loans from banks and building societies that are used to buy land and buildings
Building societies
Organisations that offer a range of financial services. However, their major business is providing savings accounts and lending money for the purpose of buying property.
Hire purchase
Paying for assets in instalments. Can be expensive and the business won’t own the item until it’s completely paid back
Influences on the choice of finance for a new business
-the amount of personal finance available to the entrepreneur
-legal structure of the business (plc/ltd)
-how risky the business is judged to be
Influences on the choice of sources of finance for established businesses
-profitability of the business
-assets owned by the business
-past history and future prospects
-legal structure (it’s easier for PLCs to sell shares)
-amount of finance that has to be raised
Creditors
Money owed by the business in the short term (suppliers who are owed money by the business are known as “trade creditors”).
