Financing Business Activity Flashcards
All 14 cards in this deck
What does 'selling assets' mean as a source of finance?
Raising cash by selling items the business owns but no longer needs, such as machinery, vehicles or property.
What is an overdraft?
An agreement with the bank allowing a business to overspend on its account, up to a limit.
What is trade credit?
An agreement allowing a business to buy goods from a supplier now and pay for them at a later agreed date.
What is a bank loan?
A fixed sum borrowed from a bank and repaid, with interest, in regular instalments over an agreed number of years.
What is retained profit?
Profit kept in the business after costs and tax, reinvested rather than paid out to owners.
Name two short-term sources of finance for a small business.
Overdraft and trade credit.
What is a share issue?
Selling new shares in a limited company to investors, who become part-owners, to raise money.
What is crowdfunding?
Raising finance from a large number of people, usually online, each contributing a small amount.
What is owners' capital as a source of finance?
Money the owner or owners put into the business, often from personal savings. It has no interest and no repayments, but the owner loses it if the business fails.
Name three long-term sources of finance for a business.
Any three of: owners' capital; a new partner; a loan; a share issue; retained profit; crowdfunding.
Name four reasons, other than expansion, why a business may need finance.
Establishing a new business; running the business day to day (e.g. buying raw materials and paying wages); recruitment; marketing.
What is taking on a new partner as a source of finance?
Bringing a new owner into a sole trader business or partnership, who puts their own money into the business in return for a share of it.
What is security on a bank loan?
Something valuable the borrower offers, such as property, that the lender can sell to get its money back if the loan is not repaid.
What can a supporter get in return for money given through crowdfunding?
It depends on the scheme: nothing (a donation), a reward such as the finished product, interest on money lent, or a share of the business.