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3.1 Sources of Finance
Transcript of 3.1 Sources of Finance
Summary of Business Ownership and Sources of Finance
The Need for Business Finance
Short-term, Medium-term and Long-term Finance
the current tax (or fiscal) year. Anything has to be repaid to creditors and lenders within the next 12 months.
It is the finance spent on purchasing fixed assets.
The sources of finance for CE tend to come from medium and long-term resources.
Refers to payments for the daily running of a business: wages, raw materials, electricity; and indirect costs: rent, insurance, advertising.
Family and Friends
Money that is available for the day to day running of a business.
AKA internal profits or ploughed-back profits.
Value of profits that the business keeps hold of to use within the business.
Selling dormant assets
In extreme cases, selling some of their fixed assets.
Main source of finance for a limited company.
Two types of share capital:
Loans obtained from commercial lenders such as banks.
Tend to be medium to long-term sources of finance.
To take out more money than the business has from their bank account.
Commonly used for minor cash flow problems.
Buy now, pay later.
Creditors usually allow between 30-60 days for their customers.
They are usually offered to eligible businesses as one-off payments.
The focus is to benefit society.
Increased demand with cut in price.
Financial gifts from individuals or organizations to a business.
Charities, schools, hospitals and universities.
When an organization gives financial support, in the form of cash, products or services, for another business in return for prominently displaying the sponsor's company brand or logo.
A financial arrangement in which a factoring company takes responsibility for collecting money relating to a business's invoices, and immediately pays that business part of the total amount owed on the invoices.
Lessor - Lessee
The lessee pays rental income to hire assets from the lessor, who is the legal owner of the assets.
A business can pay for items in installments, perhaps over 12 or 24 months. Once all the payments have been made, then the item belongs to the business.
Used for a medium- to long-term debt instrument by large companies to borrow money.
In some countries the term is used interchangeably with bond, loan stock or note.
Debenture holders have no rights to vote in the company's general meetings of shareholders
The interest paid to them is a charge against profit in the company's financial statements.
Is financial capital provided to early-stage, high-potential, high risk, growth start-up companies.
Some private investors that are extremely wealthy and choose to invest in businesses that offer high growth potential.
Highly experienced entrepreneurs that are likely to take a proactive role in the setting up or running of the venture.
The time period of more than 12 months but less than 5 years.
Any time period after the next 5 years.