Lesson 7 Flashcards
(34 cards)
What is a grant?
Money given to a business that does not need to be repaid.
What is a loan?
Borrowed money that must be repaid, usually with interest.
What are the two main categories of business finance?
Internal finance and external finance.
What is the key difference between internal and external finance?
Internal finance comes from within the business; external finance comes from outside sources.
What are owner’s savings?
Personal funds invested into the business by the owner(s).
What is a risk of using owner’s savings?
The owner may be left financially vulnerable if the business fails.
What is retained profit?
Business profit that is not distributed as dividends but reinvested.
How can retained profit be used?
To fund expansion, buy equipment, or address challenges.
What is debt collection?
Recovering money owed by customers or clients.
Why is debt collection important for finance?
It improves cash flow and reduces need for borrowing.
What does selling fixed assets involve?
Converting business-owned items like land or equipment into cash
Why might a business sell fixed assets?
To raise cash quickly or upgrade equipment.
What are the three categories of external finance?
Short-term, medium-term, and long-term finance.
What is business credit?
Money borrowed that must be repaid, often with interest.
What is an overdraft?
An agreed negative bank balance with interest on overdrawn amounts.
Why are overdrafts not suitable for long-term finance?
They are intended for short-term use and carry high interest.
What is trade credit?
Delayed payment for goods received, usually within 30–90 days.
What is crucial for trade credit arrangements?
Good relationships with suppliers.
What are business credit cards used for?
Paying business expenses and tracking spending.
What happens if a business doesn’t pay off its credit card each month?
Interest is added, usually expressed as an APR.
What is a business loan?
A sum borrowed from a bank with regular repayments and interest.
What is the usual loan term for businesses?
1–5 years.
What is the difference between secured and unsecured loans?
Secured loans use collateral; unsecured loans do not.
What is equity investment?
Money invested in return for shares in the business.
