Sources of Finance | CH - 25

whats installment?

whats installment?

series of regular payment made until money owed is paid!

what are short term needs?

wages, raw material, components, utility bills, ( revenue from sales may not cover all )

what are long term needs?

used to buy resources used repeatedly by the business for a long time

whats short term finance and long term finance?

short term	long term
money borrowed for a year or less	money borrowed for more than a year

what is incorporated and unincorporated?

unincorporated	incorporated
loan savings	loan shares

what is start up capital?

capital: finance provided by the business

• basically resources in large amounts are used for years until it gets ruined and doesnt need to be replaced constantly

what is expansion?

when the business wants to expand (needs finance btw)

• expanding capacity for orders

• developing new products

• brands into overseas markets

• diversify

what is internal finance?

basically generated from businesses own means

• personal savings, gifts, retained profit and selling assets

whats retained profit?

held by business rather than returning to the owners, its cheap and flexible by cant be used in the future if even the littlest amount is used once beforehand.

what does selling assets do?

selling an unwanted assets is basically when u can lease back if it’s needed, but time-consuming and you won’t be sure when you’ll get it back soon, uncertain bargain and not get the full amount

it’s less stressful if borrowed from friends and family
savings are easier (applies to internal finance. )
cheap method: no interest

whats external finance?

obtained from outside the business

• short term: credit cards

  • trade payable: resources from supplier and paying later

  • bank overdraft : agreement where business can spend more money than in bank (up to agreed limit)

• long term: loan capital, unsecured bank loans, mortgages, debenture, hire purchase, share capital, venture capital (investors providing money to new business) , crowd funding

whats mortage and bank loan?

mortgage: long term loan in property

bank loan: lending money w/o claiming assets if not paid back

whats debenture and hire purchase

debenture: long term loan or interest issued by company and secured assets
hire purchase: buying goods w/ loans

whats share capital and rights issue and crowd funding?

share capital: total money a company raises by issuing shares to shareholders
rights issues: sale of new shares to existing shareholder at a discount
crowd funding: lots of people investing in a business using online platform

external adv and disadv?

adv	disadv
bank overdraft: interest drawn when overdrawed simple and flexible	high interest bank can call in anytime
trade payable": cheap no interest can hold onto money, so suppliers want early pay by getting discount	upsets supplier and loses them : ( costs high if bought on credit