unit 3

Question 1

start-up capital

Answer 1

capital needed by an entrepreneur to set up a business

Question 2

working capital

Answer 2

the capital needed to pay for raw materials, day-to-day running costs and credit offered to customers

Question 3

management buy-out

Answer 3

the existing managers of a business purchase it from the owners to take full control

Question 4

internal finance

Answer 4

raised from the business’s own assets or from profits left in the business (retained profits)

Question 5

external finance

Answer 5

raised from sources outside the business

Question 6

internal sources of finance

Answer 6

• retained profit
• owner’s savings
• managing working capital
• sale of unwanted or non-current assets

Question 7

external sources of finance

Answer 7

short term: to be repaid within 12 months
- bank overdraft
- trade credit

medium term: to be repaid within 5 years
- medium term bank loan
- hire purchase
- leasing

long term: to be repaid after 5 years
- long term bank loan
- share capital
- debentures
- business mortgage
- grants
- venture capital
- business angel
- crowd funding
- microfinance

Question 8

retained profit

Answer 8

the profit left after all deductions, including dividends, have been paid this is reinvested back into the business as a source of finance

Question 9

liquidity

Answer 9

the ability of a business to pay its short-term debts

Question 10

bank overdraft

Answer 10

an arrangement with a bank that their customer can withdraw up to an agreed limit from their account as and when required, this is a form of borrowing

Question 11

trade credit

Answer 11

delaying the payment of bills to suppliers or creditors for goods or services in order to improve the business’s liquidity position

Question 12

bank loan

Answer 12

a fixed sum of money lent by a bank to a business or individual, which must be repaid over an agreed time period with interest

Question 13

hire purchase

Answer 13

an asset is sold to a company which agrees to make fixed repayments over an agreed time period, the asset belongs to the company once the final payment is made

Question 14

leasing

Answer 14

obtaining the use of equipment or vehicles and paying a rental or leasing charge over a fixed period. this avoids the need for the business to raise long-term capital to buy the asset, ownership remains with the leasing company

Question 15

equity finance/share capital

Answer 15

permanent finance raised by the company through sale of shares

Question 16

debentures

Answer 16

bonds issued by companies to raise debt finance, often with a fixed rate of interest

Question 17

grants

Answer 17

financial assistance provided by the government or other organizations to businesses or individuals, typically without the requirement of repayment.

Question 18

venture capital

Answer 18

a source of finance provided by individuals or firms to small or medium-sized businesses with high risk and high growth potential, often in exchange for equity or significant returns.

Question 19

business angel

Question 20

crowdfunding

Question 21

microfinance