Unit 3, Section 2: Sources of finance

Business Angels

Wealthy and successful private individuals who risk their own money in a business venture that has high growth potential.

Crowdfunding

Rising finance for a business venture or project by getting small amounts of money from a large number of people, usually through online platforms.

External sources of finance

Finance that comes from outside the organization, usually with the help of a third-party provider, such as a bank, business angel, venture capitalist or government.

Initial Public Offering (IPO)

Finance raised by a public limited company when it issues (sells) shares for the very first time on a stock exchange.

Internal sources of finance

Finance that come from within the organization, from its own resources and assets without the help of a third-party provider.

Leasing

This financial service enables businesses to have access to fixed assets, by hiring these assets, but without the high costs of capital expenditure.

Loan capital

Also known as debt capital, this refers to borrowed funds from financial lenders, such as commercial banks.

Long term finance

Refers to sources of finance of more than five years, for the purchase of long-term fixed assets or to fund the growth of a business in overseas markets.

Microfinance

An external source of finance provided by financier who support entrepreneurs of small businesses, especially females and those on low incomes who are ordinarily unable to secure loans from commercial banks.

Microfinance providers

Refers to the financiers or organizations that lend small amounts of money to entrepreneurs of small businesses, especially females and business owners on very low incomes.

overdraft

A banking service that enables customers (personal and business customers) to withdraw more money from their account than exists in the account.

Personal Funds

Internal source of finance, with entrepreneurs using their own savings, usually to finance their start-up business.

Retained profit

This is the surplus funds that are reinvested back in the business, rather than being distributed to the owners.

Revenue expenditure

Refers to business spending on its everyday and regular operations, e.g. spending on wages, raw materials and bills.

Sale of assets

An internal source of finance that involves the firm selling existing items of value that it owns.

Share capital

Also known as equity capital, this is finance raised through the issuing of shares via a stock exchange (or stock market).

Share issue

The process involving a public limited company selling additional shares in order to raise finance.

Short term finance

Refers to sources of finance needed for the day-to-day running of the business, i.e., revenue expenditure.

Sources of finance

Refers to where a firm obtains its money to fund its business activities and operations, such as from personal savings, loan capital, crowdfunding, and share capital.

stock exchange

A highly regulated marketplace where individuals and businesses can buy and sell shares in public limited companies.

trade credit

Financial service that enables a business customer to purchase and obtain goods and services but to pay for these at a later date.