3.2 Sources of finance

Procurement

The process of purchasing goods and services that are used by a business to produce its products.

Capital expenditure // investment

Spending on the non-current (fixed) assets of a business.
INCLUDES:
- factories
- delivery trucks
- technology
- production equipment

Revenue expenditure

spending on operational costs (day-to-day costs) eg. gas/electricity bills, worker salaries, suppliers, tax bills, debts, etc.

Insolvency

A situation in which a business is unable pay its debts (expenditures).

Internal sources of finance

Money for a business that is raised from the business's or owner's existing assets.

Personal funds

Money invested by the owner or owners of a business.

Sale of asset

Asset: an item of property that has value and is owned by a person or business.
Fixed assets usually generate income for the company.

Retained profits // accumulated profits

Money a company has left at the end of the trading year after paying all costs, expenses, dividends and taxes. Primary source of finance for all businesses.

External sources of finance

Money for a business that is raised from outside the business, such a bank loan.

Equity finance

A type of funding whereby the provider receives part ownership of the business in exchange for the finance.

Business angel

A wealthy business person who invests their money into new businesses.

Venture capital

Financing that pools resources from a group of investors to fund new businesses. They use the money from their clients to fund investments.

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 other financial institution, usually to fund investments.

Loan capital

A medium- or long-term source of finance, often used to buy fixed assets.

Overdraft

A high-cost, short-term loan attached to a bank account; allows 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 are not able to get services from traditional banks.

Trade credit

When a business receives products from a supplier immediately, but pays for them at a later date.

Leasing

A business renting (hiring) a fixed asset over a period of time, rather than buying it.

Crowdfunding

A form of finance where many people, perhaps thousands, invest small amounts of money to fund a business or project.

Recession

A period when GDP decreases for two or more successive quarters (three-month periods).

Collateral

An asset that a business or individual can offer a lender in the event that they do not pay back a loan.

Costs

The expense incurred for making a product or service that is sold by a company.

Fixed costs

Those costs that, during the relevant period, do not vary with output or activity.

Variable costs

Costs that vary with output.

Total costs

The sum of the fixed costs and the variable costs.

Sales revenue

The amount of money that acts as income for the business.