Chapter 9: Sources of Finance

Vocabulary flashcards covering key financial terms, internal and external sources of finance, and short-term versus long-term financing methods from Chapter 9.

Capital Expenditure

Money spent on fixed assets that will last more than $1\text{ year}$, which are needed at the start of a business and as it expands.

Revenue Expenditure

Money spent on day-to-day expenses that do not involve purchasing long-term assets, such as wages and rent.

Internal Sources of Finance

Sources of funds that are obtained from within the business itself.

Retained Profit

Profit kept back in the business after owners have taken their share, also known as ploughed back profit.

Selling Fixed Assets

An internal source of finance involving the sale of existing assets no longer needed by the business, such as redundant buildings or surplus vehicles.

Selling Stocks

An internal source of finance achieved by running down stock levels to convert goods into cash.

Owners' Savings

Personal savings invested into an unincorporated business by a sole trader or partners.

External Sources of Finance

Sources of funds that are obtained from individuals or institutions outside of the business.

Issue of Shares

An external source of long-term finance where shares are sold to the public by limited companies.

Bank Loans

Money borrowed from a bank that is repaid over a set time period along with interest.

Security (Collateral)

A guarantee required by a bank to ensure that the amount loaned will be paid back.

Debentures

Long-term loan certificates issued by limited companies to raise very long-term finance, such as for $25\text{ years}$.

Factoring of Debts

A financial arrangement where specialist agencies buy a firm's debts for immediate cash, typically paying around $90\%$ of the debt value.

Grants and Subsidies

Financial support given by outside agencies such as governments or non-profit institutions that does not have to be repaid.

Micro-Financing

Small loans and financial services provided by specialist institutions to meet the needs of poor entrepreneurs in developing countries.

Short-Term Funds

Finance needed for $1$ to $3\text{ years}$ that provides the working capital required for day-to-day operations.

Overdrafts

A short-term bank facility allowing a business to spend more money than is currently in its bank account.

Trade Credit

A short-term source of finance created when a business delays paying its suppliers for goods received.

Long-Term Funds

Finance available for over $3\text{ years}$, used to purchase long-term fixed assets, expand operations, or fund takeovers.

Hire Purchase

A method of buying a fixed asset over a long period through monthly payments including interest, following an initial cash deposit.

Leasing

An agreement that allows a firm to use an asset in exchange for regular monthly payments without having to purchase it.

Sale and Lease Back

A transaction where a business sells its fixed assets for cash and immediately leases them back from a leasing company.