Ch.19- Business finance: needs and sources

Question 1

Start-up capital

Answer 1

The capital needed by an entrepreneur when first starting a business

Question 2

Working capital

Answer 2

The capital needed to finance the day-to-day running expenses and pay the short-term debts of a business

Question 3

Non-current (fixed) assets

Answer 3

Resources owned by a business which will be used for a period longer than 1 year

Question 4

Capital expenditure

Answer 4

Spending by a business on non-current assets such as machinery and buildings

Question 5

Long-term finance

Answer 5

Debt or equity used to finance the purchase of non-current assets or finance expansion plans. Long-term debt is borrowing a business doesn’t expect to repay in less than 5 years

Question 6

Short-term finance

Answer 6

Loans or debt that a business expects to pay withing one year

Question 7

Retained profit

Answer 7

Profit remaining after all expenses, tax and dividends have been paid and which is ploughed back into the business

Question 8

Overdraft

Answer 8

An agreement with the bank which allows a business to spend more money that it has in its account up to an agreed limit. The loan has to be repaid within 12 months

Question 9

Trade receivables

Answer 9

Amount owed to a business by its customers who bought goods on credit

Question 10

Debt factoring

Answer 10

Selling trade receivables to improve business liquidity

Question 11

Bank loan

Answer 11

Provision of finance by a bank which the business will repay with interest over an agreed period of time

Question 12

Leasing

Answer 12

Obtaining the use of a non-current asset by paying a fixed amount per time period of time. Ownership remains with the leasing company.

Question 13

Hire purchase

Answer 13

The purchase of an asset by paying a fixed repayment amount per time period over an a period of time. The asset is owned by the company on the completion of the final repayment.

Question 14

Mortage

Answer 14

A long-term loan used for the purchase of land or buildings

Question 15

Debenture

Answer 15

A bond issued by a company to raise long-term finance usually at a fixed rate of interest

Question 16

Share issue

Answer 16

A source of permanent capital available to limited liability companies

Question 17

Equity finance

Answer 17

Permanent finance provided by the owners of a limited company

Question 18

Micro-finance

Answer 18

Small amounts of capital loaned to entrepreneurs in countries where business finance is often difficult to obtain. These loans are usually repaid after a relatively short period of time

Question 19

Crowd-funding

Answer 19

Financing a business idea by obtaining small amounts of capital from a large number of people, most often using the internet and social media networks.