3.1 Sources of finance

Hire purchase

________: asset is sold to a company which agrees to make fixed repayments over an agreed time period; the asset belongs to the company.

Subsidies

________: financial benefits given by the government to a business to reduce costs and encourage increased production.

Debentures

________ (also known as loan stock or corporate bonds): bonds issued by companies to raise debt finance, often with a fixed rate of interest.

Internal finance

________: raised from the businesss own assets or from profits left in the business (ploughed- back or retained profits)

Bank overdrafts

________= (bank agrees to a business borrowing up to an agreed limit as and when required)

Venture capital

________: risk capital invested in business start ups or expanding small businesses, which have good profit potential, but do not find it easy to gain finance from other sources.

External finance

________: raised from sources outside the business.

Start-up capital

capital needed by an entrepreneur to set a up a business

Working capital

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

Working capital = Current assets

Current liabilities

Internal finance

raised from the businesss own assets or from profits left in the business (ploughed-back or retained profits)

External finance

raised from sources outside the business

Retained profit

profit left after all deductions, including dividends, have been made; this is "ploughed back" into the company as a source of finance

Debt factoring

selling of claims over debtors to a debt factor in exchange for immediate liquidity; only a proportion of the value of the debts will be received as cash

Hire purchase

asset is sold to a company which agrees to make fixed repayments over an agreed time period; the asset belongs to the company

Leasing

obtaining the use of equipment or vehicles and paying a rental or leasing charge over a fixed period

Long-term loans from banks

loans that do not have to be repaid for at least one year

Debentures (also known as loan stock or corporate bonds)

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

Venture capital

risk capital invested in business start ups or expanding small businesses, which have good profit potential, but do not find it easy to gain finance from other sources

Business angels

individual investors who put in their own money in a variety of businesses and are seeking a better return than they would obtain from conventional investments

Subsidies

financial benefits given by the government to a business to reduce costs and encourage increased production

Start-up capital

Capital needed by an entrepreneur to set a up a business

Working capital

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

Internal finance

Raised from the business's own assets or from profits left in the business (ploughed-back or retained profits)

External finance

Raised from sources outside the business

Retained profit

Profit left after all deductions, including dividends, have been made; this is "ploughed back" into the company as a source of finance

Overdrafts

Bank agrees to a business borrowing up to an agreed limit as and when required)

Debt factoring

Selling of claims over debtors to a debt factor in exchange for immediate liquidity; only a proportion of the value of the debts will be received as cash

Hire purchase

Asset is sold to a company which agrees to make fixed repayments over an agreed time period; the asset belongs to the company

Leasing

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

Long-term loans from banks

Loans that do not have to be repaid for at least one year

Debentures (also known as loan stock or corporate bonds)

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

Venture capital

Risk capital invested in business start ups or expanding small businesses, which have good profit potential, but do not find it easy to gain finance from other sources

Business angels

Individual investors who put in their own money in a variety of businesses and are seeking a better return than they would obtain from conventional investments

Subsidies

Financial benefits given by the government to a business to reduce costs and encourage increased production