Progress Check 3 Flashcards
(15 cards)
What are internal sources of finance?
Sources of funds generated within the business, such as retained earnings and sale of assets.
What is retained earnings?
Profits reinvested in the business instead of being distributed to shareholders.
How can a business raise funds through the sale of assets?
By selling unused or unnecessary assets.
What are external sources of finance?
Funds sourced from outside the business, including bank loans, investors, and government grants.
What is a bank loan?
Borrowing a specific amount of money from a bank to be paid back with interest over a fixed term.
What is an overdraft?
An arrangement with a bank that allows a business to withdraw more money than is available in its account, up to a limit.
What is trade credit?
Purchasing goods or services with an agreement to pay later, allowing businesses to sell before paying.
How do investors provide finance?
They provide funds in exchange for ownership equity in the business.
What are government grants and loans?
Financial aid from the government, where grants do not have to be repaid, while loans may have favorable repayment terms.
What is crowdfunding?
Raising small amounts of money from a large number of people, often through online platforms.
What is share capital?
Money raised by selling shares of the company, giving investors a stake in the business.
What does leasing mean in terms of finance?
Obtaining the use of equipment for a specific period by paying rent instead of purchasing it outright.
What is short-term finance?
Finance used for immediate needs, such as overdrafts and trade credit.
What is long-term finance?
Finance used for longer-term investments and expenses, like bank loans and share capital.
What factors should a business consider when choosing a source of finance?
Cost of finance, amount required, duration of need, control level, and associated risks.
