I.S. Formative 1: Sources of Finance Quiz

Capital Expenditure

The investment required to start and maintain a business, including money spent on long-term fixed assets like buildings and machinery.

Revenue Expenditure

Money used for day-to-day operations and indirect costs such as wages, rent, and utilities.

Internal Sources of Finance

Funds generated within the business, including personal funds, retained profits, and sales of assets.

Personal Fund

The initial money available in a bank account to fund a start-up.

Retained Profits

Income remaining after taxes, interest, and dividends, available for reinvestment in the business.

Sales of Assets

Selling fixed assets to generate funds for new investments or to keep up with market demands.

External Sources of Finance

Funds generated from outside the business, including share capital, loan capital, and mortgages.

Share Capital

Money raised by sharing ownership of the company, which can dilute decision-making power.

Loan Capital

Borrowed funds that must be repaid with interest, often used when a person lacks sufficient funds.

Mortgage

A secured loan specifically for purchasing property, where the borrower repays the bank over time.

Business Development Loans

Loans aimed at expanding an existing business, even when sufficient funds are available.

Overdraft

A short-term borrowing solution allowing a business to withdraw more money than is available in its account.

Trade Credit

An arrangement allowing a business to buy goods and pay for them later, often used for machinery purchases.

Grants

Non-repayable funds provided by the government, often difficult to obtain, especially for start-ups.

Leasing

A financial arrangement where a company borrows an item without ownership, often more expensive in the long term.

Venture Capitalists (VC)

Investors who provide funds to small/medium businesses with growth potential in exchange for equity or loans.

Angel Investors (AI)

Wealthy individuals who invest in small businesses within their network, with varying repayment agreements.

Return on Investment

A measure of the profitability of an investment, assessing the potential for financial return.

Short-term Finance

Loans or financing options that require repayment within 12 months, such as overdrafts and leasing.

Medium-term Finance

Financing options with repayment periods between 1 to 5 years, including commercial loans and hire purchase.

Long-term Finance

Financing options with repayment periods exceeding 5 years, typically including mortgages.