Business- Theme 2.1: Raising Finance

Long-Term Finance

Sources of money for businesses that are borrowed or invested typically for more than a year. E.g: Bank Loan, Mortgage, Grants, Debentures

Short-Term Finance

Sources of money for businesses that may have to be repaid with immediately or fairly quickly. E.g: Overdraft, Trade Credit.

Internal Finance

Money generated by the business or its current owners

Owner's Capital

Money invested in the business from the owner's personal savings

Sale of Assets

When a business sells off its unwanted or unused assets to raise funds

Retained Profit

Profit which is kept back in the business and used to pay for investment in the business.

Internal Benefits and Negatives

Benefits: -No interest payments
-Business has full control of how to spend
-Saves Space

Negative: -Not very liquid
-High Risk
-May not be enough financed

Source of finance

A source, either within or outside of a business, from which a business can get access to money. E.g: Friends or Family, Business Angels, Banks and Public.

External Finance

Money raised from sources outside the business (e.g. share issue, leasing, bank loan)

Method of Finance

The process through which a source of finance provides money to a business

Bank Overdraft

Borrowing money from a bank by drawing more money than is actually in a current account. Interest is charged on the amount overdrawn

Trade Credit

The practice of buying goods and services now and paying for them later

Grants

A sum of money given by a certain organization, especially the government, for a certain reason or cause

Crowd Funding

The practice of funding a project or venture by raising small amounts of money through donations from a large pool of people, typically raised via the Internet

Lease

A contract granting use or occupation of property or equipment during a specified time for a specified payment

Bank Loan

Borrowing a sum of money which has to be repaid with interest over a period of time

Mortgage

A loan where property is used as security.

Debentures

Unsecured bonds backed only by the credit worthiness of the bond issuer

Collateral

An asset that might be sold to pay a lender when a loan cannot be repaid

Share Capital

Money introduced into the business through the sale of shares

Venture Capital

Money provided by investors to finance new products and new businesses that have a good chance to be very profitable

Business Plan

A plan for the development of a business, giving details such as the products to be made, resources needed, and forecasts such as costs, revenues and cash flow

Cash-flow Forecast

The prediction of all expected receipts and expenses of a business over a future time period which shows the expected cash balance at the end of each month

Cash Inflow

Flow of money into business

Cash Outflow

Flow of money out the business

Net Cash flow

The difference between the cash flowing in and the cash flowing out of a business in a given time period