component 1-12. sources of finance

what is capital expenditure

spending on business resources which can be used repeatedly over a period of time eg. fixing assets

what is revenue expenditure

spending on business resources needed in general training of the business eg. raw materials or stock

what is investment capital

investment put into the business

what is retained profit 

retained profit is profit after tax which is kept in the business for reinvestment. It is the most important source of finance for a business 

what is a bank loan

external capital gained from taking taking out a loan from a bank. This will be re-paid with intrest

what is overdraft

able to withdraw more money from the business bank account than the amount in

what is trade credit

when goods are bought from supplier on credit, eg. able to receive the stock/raw materials and pay for them at a later date, often 30 days

what is leasing and hire purchase 

when assets are ‘leased’ from a leasing company. firms get to use the asset whilst monthly repayments are made - but the asset is never owned. Hire purchase is very similar but the assets are owned at the end 

what is a morgage 

large sum borrowed from the bank to purchase buildings. Repaided over many years with added intrest 

what is a venture capitialists

providers of funds for SME that may be consiered too risky for other investors

what is the princes trust/ kings trust

a charitable organisation set up to help young people set up in business 

what is owners capital

the capital put into the business by its owner

What is sales of assets

An established business may be able to sell some unwanted assets to raise finance eg. Machinery, land and buildings that are no longer needed

What is working capital?

Finance available for the day to day expenses of a business. The difference between current assets and current liabilities

What is debt factoring?

When customer debts are sold on to a debt factoring company. Receive cash straight away but usually only about 80-85% of the invoice owed. A healthy business will not use debt factoring

What si sale and lease back?

The business sells assets such as buildings and machinery to a finance company and then leases the assets back

What is government assistance?

Government offering finance to entrepreneurs usually in the form of a grant or tax relief

What is share capital?

Capital is received from investors in return for shares in the business for a limited company it is likely to be the most importantly source if finance