Sources Of Finance Flashcards
Internal finance?
Finance that comes from within a business e.g using income previously earned by the business
External finance
Sourced outside of the organisation - finance providers will be expecting a return
What is meant by debt factoring
Business sells its outstanding customer accounts (those who have not paid their debts to the business) to a debt factoring company. The company pays the business 80-90% of face value and then colllects full debt later.
What is meant by an overdraft
Business that make payments from the business current account exceeding the available cash balance. Enables business to obtain short term funding.
What is meant by share capital
Private and public companies can raise finance by selling new shares in the company.
Two options for selling shares?
1) Flotation - new issues of shares / selling a percentage of a company’s shares on the stock market
2) A right issue - issue new shares, offering them first to existing share holders
What is meant by a loan
Amount of money borrowed for a set period with an agreed repayment schedule
What is venture capital
Venture capital is investment in exchange for an equity stake within the business
What is venture capitalist stake dependent on and how can a venture capitalist earn the returns?
Determined on: the growth and profitability of a business
Return earned when venture capitalists exits by selling shares within the business to another owner
Internal and external sources of finance
External include
- overdrafts
- loans
- debt factoring
Internal
- retained profits
- Share capital
- Venture capital
