2.1 Raising Finance

Business A-level definitions

Finance

The ability of a business to meet its monetary needs

Sources of finance

The options available to a business when seeking to raise funds to support future business actions

Internal finance

Capital raised from within the business

Owners capital

When an entrepreneur invests their own money in a business, known as equity

Retained profit

Profit kept within a business from profit for the year to help finance future activities

Sale of assets

Refers to the sale of long term or fixed assets

External finance

Capital raised from outside the business

Family and friends

An investment from people known by the entrepreneur

Banks

Financial institutions that are licensed to take deposits, pay interest, make loans and provide other financial services to their customers

Peer-to-peer funding

The practice of an individual lending to other individuals where there is no relationship/contact

Business angels

Wealthy individuals that make personal investments into start-up businesses in return for percentage equity

Crowdfunding

Involves raising finance from a large number of people each investing different, often small, amounts of money

Other businesses

Businesses with healthy cash balances may look to invest in other businesses

Loans

A set amount of money provided for a specific purpose, to be repaid with interest, over a set period of time

Share capital

Finance raised from the sale of shares

Venture capital

Investment from an established business into another business in return for a percentage equity in the business

Overdrafts

The facility to overspend on a current account to an agreed sum

Leasing

Allows a business to benefit from the use of an asset without owning it or buying it outright

Trade credit

Is paying suppliers a period of time after the goods or services have been recieved

Grants

Fixed amounts of capital provided to businesses by the Government or other organisations to fund specific projects