Sources of business finance

• What does return on investment measure?

  Investor's returns as a percentage
• What is a credit check used for?

  To assess a borrower's reliability
• What is security in finance?

  An asset repossessed for a loan
• What does the term 'loan time' refer to?

  The duration required for a loan
• Who is a guarantor?

  A person guaranteeing loan repayment
• What is interest in the context of loans?

  The cost of borrowing money
• What is a credit limit?

  The maximum amount that can be borrowed
• What does the credit period indicate?

  The time allowed to pay suppliers
• What are dividends?

  Share of profit given to shareholders
• Why do small businesses need finance?

  • Start-up costs (e.g., equipment)
  • Long-term running costs (e.g., suppliers, stock)
  • Short-term costs (e.g., wages)
• What are short-term sources of finance?

  1. Cash
  2. Overdraft

  • Overspending the bank account

  1. Trade credit

  • Buy now, pay later for suppliers
  • Used for day-to-day cash flow problems
• What are internal sources of finance for established businesses?

  1. Retained profit

  • Profit kept from previous years

  1. Sale of assets

  • Selling items no longer needed
• How do you calculate interest as a percentage of repayment?

  $\frac{\text{total repaid - initial amount}}{\text{initial amount}} \times 100$
• What is retained profit?

  Profit kept from previous years
• What does trade credit allow businesses to do?

  Buy now and pay later for supplies
• Why is cash considered a short-term source of finance?

  It is used for immediate expenses
• Why do large businesses need finance?

  To fund growth
• What is one reason large businesses need finance for growth?

  Paying for external growth costs
• What is another reason large businesses need finance for growth?

  Paying for internal R&D
• What is one external long-term source of finance?

  Personal savings of the entrepreneur
• What is venture capital?

  Risky investment from specialist investors
• What is loan capital?

  Borrowing from a bank
• What is a characteristic of loan capital?

  Requires repayment with interest
• What is crowdfunding?

  Getting donations from small online investors
• What do investors receive in crowdfunding?

  A gift or reward
• What is share capital?

  Raising funds by selling shares
• Who are private investors?

  Individuals who buy shares in a business
• What is the stock market used for?

  Selling shares to the public
• What are dividends?

  Payments made to shareholders