Sources of finance Definitions Flashcards
Internal source of financce
money for a business that is raised from the business’s or owner’s existing assets
Dividends
a portion of a business’s profits distributed to the owners/shareholders
Bankruptcy
a state in which a human or non-human entity is unable to repay its outstanding debts to creditors
Creditor
an entity to whom money is owing
Retained profit
money that a company has left at the end of the trading year after paying all costs, expenses, dividends and taxes
Opportunity cost
the potential cost of missing an opportunity by choosing one option and foregoing another(e.g. the opportunity cost of selling assets is that any future production or revenue from that asset will be lost)
External source of finance
money for a business that is raised from outside the business
Equity finance
a type of funding whereby the provider receives part ownership of the business in exchange for the finance
Venture capital
financing that pools resources from a group of investors to fund new businesses
Business angel
a wealthy business person who invests their money into new businesses
Share capital
finance for a business that is raised through the issue of shares to new investors on a stock market
Debt finance
money that is borrowed from a bank or financial institution, usually to fund investments
Loan
a medium or long-term source of finance, often used to buy fixed assets
Mortgage
a special type of long-term laon that is used to purchase land or buildings
Collateral
an asset that a buinsess or individual can offer to a lender in the event that they do not pay back a loan
Overdraft
a high-cost, short-term loan attached to a bank account, allowing the account holder to withdraw an amount of money that is greater than the amount they currently hold
Microfinance
financial services provided to individuals who have very limited income and assets and who are not able to get services from traditional banks
Microcredit
Small loans that enable to someone to start up or continue to finance a small-scale business; a subset of microfinance
Trade credit
a type of external finance whereby a business receives products from a supplier immediately, but pays for them at a later date
Leasing
a process which involves renting(hiring) a fixed asset over a period of time, rather than buying it
Crowdfunding
a form of finance where many people invest small amounts of money to fund a business or project
