Sources of Finance

Question 1

Bank Overdraft

Answer 1

When the bank allows the customer to withdraw more funds from their bank account than are currently available.

Question 2

Trade Credit

Answer 2

The length of time a business has to pay for goods purchased from their supplier. EG 28 days.

Question 3

Retained Profits

Answer 3

Profits set aside from previous financial years which can be used to reinvest in the business.

Question 4

Grant

Answer 4

Finance received from organisations such as the Government, Business Gateway or The Prince’s Trust., Usually the funds do not have to be repaid.

Question 5

Factoring (Debt Collector)

Answer 5

When a factor buys the debts of a business, for less than they are worth. The factor will then attempt to recover the debts.

Question 6

Hire Purchase

Answer 6

A business can buy an asset and repay the cost over a period of time e.g. 36 months. The business does not legally own the asset until the last payment is made.

Question 7

Leasing

Answer 7

The business pays to ‘rent’ an asset and they will never legally own the asset.

Question 8

Additional Capital

Answer 8

When existing owners or new investors put more money into the business.

Question 9

Mortgage

Answer 9

A long term loan which is used to purchase property or land

Question 10

Bank Loan

Answer 10

The bank lends the business a fixed amount of money to be repaid in monthly instalments over a period of time.