Sources of Finance

These flashcards cover key terms and concepts related to sources of finance, focusing on definitions and explanations relevant for understanding financial instruments and their implications.

Overdraft

A permit to overdraw on an account up to a stated limit, usually arranged for a few months to a year with interest charged on excess drawings.

Term Loan

A loan of a fixed amount for an agreed time and specified terms, typically over 3 to 7 years.

Trade Credit

The simplest and most important source of finance, where suppliers allow businesses to buy now and pay later, usually within 30 days.

Factoring

An immediate transfer of cash where a factor provides an advance payment on the receivables of a company.

Leasing

An arrangement where the lessee pays to use an asset owned by another, without gaining ownership.

Covenants

Terms set in bond contracts to protect bondholders, such as limits on further borrowing or restrictions on dividends.

Convertible Bond

A type of bond that gives the holder the right to exchange it for a specified number of shares at a predetermined rate.

Eurobonds

Bonds sold outside the jurisdiction of the bond's currency, generally less regulated and considered bearer bonds.

Disadvantages of Ordinary Shares

Investors are last to have their claims met in liquidation and directors have discretion in proposing dividends.

Warrants

Instruments that give holders the right, but not the obligation, to purchase shares at a specific price before a certain date.