3.2 Sources fo Finance - Luka

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Last updated 9:24 PM on 4/8/26
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27 Terms

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2 types of sources of finance

  • Internal

  • External

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Opportunity Cost

Other actions that could have been funded with money

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SPACED

  • Size of business

  • Purpose of the finance

  • Amount required

  • Cost (of the finance)

  • External environment (STEEPLE)

  • Duration (timescale)

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Short Term sources of finance

Have to be repaid within 12 months

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Medium Term sources of finance

Last longer than 1 year but less than 5 years

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Long Term sources of finance

Last longer than 5 years

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External sources of finance

  • Equity finance

  • Debt finance

  • Other sources of finance

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Internal Sources of Finance

  • Personal funds

  • Retained profit

  • Sale of assets

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Equity Finance

Selling a share of the company (provider receives part of the ownership)

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3 Categories of Equity Finance

  • Business angel

  • Venture capital

  • Share capital

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Business Angel

Wealthy business person that invests their money into businesses.

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Venture Capital

Companies that use money from their clients to fund investments.

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Share Capital

Money raised through the issue of shares to new investors in the stock exchange.

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Debt finance

Borrowing money from a bank or other financial institutions

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Forms of Debt finance

  • Loan capital

  • Overdrafts

  • Microfinance

  • Trade credit

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Loan Capital

Medium or long term source of finance, usually to buy fixed assets.

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Overdraft

Going below 0 in accounts

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Microfinance

Providing financial services to individuals who have very limited income and are not able to get services from traditional banks.

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Trade Credit

Supplies are given to retailers and payments are made within 30, 60 or 90 days

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Other sources of finance

  • Leasing

  • Crowdfunding

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Leasing

Renting (hiring) a fixed asset over a period of time, rather than buying it

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Hire purchase

Keeping the asset after the time period of leasing it.

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Peer-to-peer funding

Many investors providing a loan that earns interest

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Equity crowding

Everyone who puts in money gets shares

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Reward-based crowdfunding

Investing in a firm with an idea, and getting a product from the firm (mostly whatever they are developing)

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Donation based crowdfunding

Participants are donors rather than investors.

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Features of an overdraft

  • High interest

  • Short term (small amount, usually to cover up daily costs)