Sources of financing

Question 1

short term financing
Bank overdraft

Answer 1

A business arranges with the bank to withdraw more money than what is available in the business’s account.

Question 2

Suppliers’ credit

Answer 2

The seller has agreed that the buyer can take the products that he/she requires and pay for them at a later stage.

Question 3

Short term loans

Answer 3

Money must be paid back with interest over a short term – usually less than five years.

Question 4

Lease account

Answer 4

Instead of buying an asset, it can be hired. This means that the asset remains the property of its owner. The lessee pays a monthly amount for the use and enjoyment of the property.

Question 5

Long term financing
Johannesburg Securities Exchange (JSE)

Answer 5

A business can sell its shares to obtain capital.

Question 6

Long term loan

Answer 6

Money must be paid back with interest over a long term – sometimes up to thirty years.

Question 7

Reserve funds

Answer 7

A business can access money that was saved in its reserve fund. Money in a reserve fund is money that was not distributed to a business’s owners.