internal finance

finance from within the business

Owner’s capital 

Personal savings of the business owner

Retained Profit 

The profit that has been generated in previous years and not distributed to the owners but reinvested back into the business

Sale of Assets

Selling business assets which are no longer required

external finance

finance from outside the business through investment obtained from banks, investors and lenders

source of finance

where the finance has come from e.g. banks

method of finance

use of a finance method e.g. a loan to buy computer equipment for a business

Family and Friends

Family and friends lend money but it’s likely only to sole traders- only person in the business

Banks

Large sums of money are able to be loaned from the bank. It is easier for bigger businesses to be lent money than smaller businesses e.g. PLC vs Sole Trader

Peer-to-Peer lending

Business is able to take out a loan from a group of individuals or institution. The loan will then be paid back after a certain amount of time

Business Angels

A group of business experts investing in exchange for a % share of the business. It is beneficial as investors are able to help with decision making

Crowdfunding

Individuals are able to invest in small businesses return for a share of their business- usually used by businesses that are starting up

Other businesses

Businesses may get finance through other businesses that are looking to invest in the business in return for a % of their shares

Loans

Loaning money from a bank is like “renting” the money

Overdrafts

When a business is allowed to spend more than it holds in its current bank account up to an agreed limit

Leasing

A way of renting an asset that the business requires e.g. coffee machine

Monthly payments are made and the leasing company is responsible for the provision and upkeep of the leased item.

Trade Credit

A type of short term financing offered by suppliers or distributors that allows a business to purchase goods or services now and pay for them later

Grant

A sum of money provided by the government that doesn’t have to be repaid

Share Capital 

Finance invested into a company as a result of shares in the business

Venture Capital

Funds advanced to businesses thought to be relatively high risk in the form a share and loan capital

unlimited liability

the owner of the business is responsible for all the debts of a failed business and may lose possessions to pay debt

(can take anything)

limited liability

the responserbility of the owner of the business is limited to the fully paid up value of their share capital

(money invested is what they are liable for)

business plan

a written document that describes the overall nature of a business and how the business intends to grow and develop

cashflow forecast

a document created to help predict cash inflows and cash outflows over a period of time