Intro to Finance and Sources of Finance Key Terms

Capital expenditure

money spent to acquire items in a business that will last for more than a year and may be used over and over again

Revenue expenditure

money spent on the day to day running of a business

Internal finance

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

External finance

raised from sources outside the business

Personal funds 

the owner’s savings 

Retained profits

the profit left after all deductions, including dividends, have been made; this is invested back in the business as a source of finance

Sale of assets

businesses can sell their unused assets to raise finance

Share capital

the money a business raises by issuing stock

Loan capital 

these are obtained from lending institutions such as banks. interest is charged and the amount borrowed is repaid in instalments over a fixed period of time

Overdrafts

an arrangement with a bank that their customer can withdraw up to an agreed limit from their account as and when required

Trade credit

delaying the payment of bills for goods or services received. the suppliers, or creditors, are providing goods and services without receiving immediate pay

Crowdfunding 

the use of small sums of capital from a large number of individuals to finance a new business venture 

Leasing

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

Microfinance

the provision of very small loans by specialist finance businesses, usually not traditional commercial banks

Business angels

an individual, usually with business experience, who directly invests part of their wealth in new and growing businesses

Liquidity 

the ability of a firm to pay its short term debts