Sources Of Finance - Definitions Flashcards
Retained profit
- Internal source of finance
- Previous profit is retained for reinvestment
Sale of assets
- Internal source of finance
- Where assets (e.g: machinery) are sold to gain money, which is used for finance.
Improved management of working capital
- Internal source of finance
- The working capital (used for e.g: wages) is spent more efficiently, to save finance.
Family and friends
- External source of finance
- Family and friends of a business owner, provide money to a business in return for equity.
Peer to peer funding
- External source of finance
- Individuals lend money to a business owner, and are repaid after a certain period of time.
Business angels
- External source of finance
- Wealthy individuals pay promising businesses finance in return for equity
Crowdfunding
- External source of finance
- Individuals give money to a business, usually via the Internet, in return for a service or sample.
Loans
- External source of finance
- Borrowing money from a bank, which has to be repaid over a set period or time, either in instalments or at the end of the loan.
Venture capital
- External source of finance
- Wealthy groups, usually on the stock market, fund a large amount of money to a business in return for equity.
Overdrafts
- External source of finance
- Bank allows business to have a negative balance, but business pays interest on a daily basis when the balance is negative.
Leasing
- External source of finance
- Business rents assets on a monthly period from supplier, rather than buying them.
Trade credit
- External source of finance
- Suppliers provide assets to a business and accept payment at a future date.
Grants
- External source of finance
- Local authority or central government give finance to a valuable business.
