Business Finance: Internal, External, Short- and Long-Term Sources

What are start-up costs?

One-off costs incurred in starting up a new business.

What are running costs?

The day-to-day costs involved in keeping a business going once it has launched.

What is working capital?

Capital needed for the day-to-day running of a business, usually for a period of up to three years.

What is the difference between internal and external finance?

Internal finance is money gained from inside the business, while external finance is investment obtained from outside sources.

What is an example of internal finance?

Owner's savings or retained profit.

What is an example of external finance?

Loans, mortgages, or venture capital.

What is a bank overdraft?

An arrangement allowing a business to withdraw more money than it has in its account, up to a specified limit.

What is a bank loan?

An amount of money borrowed from the bank, repaid with interest over a set period of time.

What is trade credit?

A B2B agreement allowing a customer to purchase goods on account and pay the supplier at a later date.

What is factoring in finance?

Selling debts to a factoring company to raise immediate finance.

What is share capital?

Money raised by selling shares in the business.

What is a mortgage?

A long-term loan provided by a bank to buy property.

What are grants?

Funds provided by the government or other organizations that do not need to be repaid.

What is retained profit?

Profit that is reinvested in the business instead of being distributed to shareholders.

What is venture capital?

Investment from individuals or firms in exchange for equity in a business, typically high-risk startups.

What are the typical time frames for short-term finance?

Up to 3 years.

What are the typical time frames for long-term finance?

10 years or more.

What is a hire purchase?

An agreement to pay for an asset in installments while using it.

What is leasing?

A method of obtaining the use of an asset by paying rent for a specified period.

What is the purpose of raising finance for a business?

To start a business, expand production, develop new products, or cover unforeseen events.

What is the advantage of a fixed-rate loan?

Certainty in repayment costs, making financial planning easier.

What is the disadvantage of a variable-rate loan?

Uncertainty in repayment costs due to fluctuating interest rates.

What is the role of personal savings in business finance?

A cheap source of finance without interest charges, often used by entrepreneurs.

What is the risk of using personal savings for business finance?

Risk of losing personal funds if the business fails.

What is the significance of selling assets for finance?

Assets can be sold for cash or borrowed against to raise funds.

What is a debenture?

A document evidencing a loan against a company's assets, repayable at a future date.

What is the main advantage of debentures over shares?

Debentures provide secure interest payments and do not grant ownership in the company.

What is hire-purchase?

A method of paying for an item in installments, where ownership transfers after the final payment.

What is a disadvantage of hire-purchase?

More money is paid out by the end of the contract than if the item was purchased outright.

How does leasing differ from hire-purchase?

Leasing is similar to renting; the business never owns the item unless offered for sale at the end.

What is sale and leaseback?

A transaction where an asset is sold and then leased back, allowing the seller to use the asset while receiving capital.

What are two disadvantages of sale and leaseback?

The company no longer owns the asset and there is no guarantee the lease will be renewed.

What factors affect how much finance a business can obtain?

The type of business, stage of development, and state of the economy.

What are the six types of short/medium term finance?

Debentures, retained profits, venture capital, hire-purchase, leasing, and sale and leaseback.

What is debt factoring?

Selling debts to another business that will attempt to collect them.

What is an overdraft?

Short-term lending from a bank allowing a business to withdraw more money than it has in its account.

What are loans in the context of business finance?

A sum of money borrowed from a bank expected to be paid back with interest.

What is the purpose of research and development in financing?

To create new products and maintain competitiveness.

What is the significance of training/retraining employees?

To improve skills and productivity within a business.

What is the role of government grants in business financing?

To provide financial support for specific projects or improvements.

What should a business consider when choosing a finance option?

Internal vs external sources, short-term vs long-term needs, and specific project requirements.

What is the case study of Scoop Gelato about?

A business needing £100,000 for expansion due to increased demand.

What are two possible sources of finance for Scoop's expansion?

Venture capital and bank loans.

Why might a business need working capital?

To cover day-to-day operational expenses.

What is the purpose of the television program 'Dragons' Den'?

To allow entrepreneurs to pitch their business ideas to venture capitalists for investment.

What is the learning intention regarding sources of finance?

To explain, distinguish, and evaluate different sources of finance for businesses.