Unit 3 - Finance

• Business angels: extremely wealthy individuals who risk their own money by investing in small to medium-sized businesses that have high growth potential.
• Crowdfunding: the practice of raising finance for a business venture or project by getting small amounts of money from a large number of people, usually through online platforms.
• External sources of finance: the funds from outside the organization, such as through debt (overdrafts and loan capital), share capital, and business angels.
• Initial public offering (IPO): refers to a business converting its legal status to a publicly traded company by floating (or selling) its shares on a stock exchange for the first time.
• Internal sources of finance: funds generated from within the organization, namely through personal funds, retained profits and the sale of assets.
• Leasing: a form of hiring whereby a lessee pays rental income to hire assets from the lessor, the legal owner of the assets.
• Loan capital: (debt capital) refers to medium- to long-term sources of interest-bearing finance obtained from commercial lenders. Examples include mortgages, business development loans, and debentures.
• Long-term finance: finance from sources that are available for any period of more than 12 months from the accounting period, used for the purchase of fixed assets or to finance the expansion of a business.
• Microfinance: a type of financial service aimed at entrepreneurs of small businesses, especially females and those on low incomes.
• Microfinance providers: refers to the financiers or organizations that lend small amounts of money to entrepreneurs of small businesses, especially females and business owners on very low incomes.
• Overdraft: allows a business to spend over the amount in its bank account, up to a pre determined limit. They are the most flexible form of borrowing for most businesses in the short term.
• Personal funds: a source of internal finance, referring to the use of an entrepreneur's own savings. Personal funds are usually used to finance business start-ups for sole traders.
• Retained profit: the value of the surplus that a business keeps to use within the business after paying corporate taxes on its profits to the government and dividend payments to its shareholders.
• Revenue expenditure: refers to business spending on its everyday and regular operations, e.g. spending on wages, raw materials, and bills.
• Sale of assets: selling existing items of value that the business owns, such as dormant assets (unused assets) and obsolete assets (outdated assets).
• Share capital: the money raised from selling shares in a limited liability company.
• Share issue: (share placement) an existing publicly held company raises further finance by selling more of its shares.
• Short-term finance: finance from sources available for less than one year, used to pay for the daily or routine operations of the business, such as overdrafts and trade credit.
• Sources of finance: the general term used to refer to where or how businesses obtain their funds, such as from personal funds, retained profits, loan capital, and share capital.
• Stock exchange: a highly regulated marketplace where individuals and businesses can buy and/ or sell shares in publicly traded companies.
• Trade credit: allows a business to postpone payments or to 'buy now and pay later'. The credit provider does not receive any cash from the buyer until a later date (usually between 30-60 days).