Unit 2

• Collateral is an asset that might be sold to pay a lender when a loan cannot be repaid
• Capital is the money provided by the owners in the business
• Bank overdraft is an agreement with the bank which means that the business can spend more than it has in its account (going 'overdrawn'). The overdraft limit is agreed; interest is only changed if the business goes overdrawn
• Authorized share capital is the maximum amount that can be legally raised.
• Capital expenditure is the spending on business resources that can be used repeatedly over a a period of time.
• Capital gain is the profit made from selling a share for more than it was bought.
• An asset is an item that the business owns that can be sold to raise cash eg a van or machine.
• Crowd funding is where a large number of individuals invest in a business or project on the internet, avoiding the use of a bank
• Current ratio (current assets or liabilities) shows investors how many times the company can pay out its current liabilities (short term debts) out of its current assets.
• A debenture is a long term loan to a business
• Equities is another name for an ordinary share
• External finance is where money is raised from outside of the business e.g family and friends, bank overdrafts
• Gearing is the amount of funding in a business which is leant from a bank, versus funding which has been acquired from shareholders.
• An incorporated business is a business model in which the business and its owners have separate legal identities.
• Interest repayments are the amount of interest that will need to be paid on top of payment of the original loan amount back to the bank.
• Internal finance is money generated by the business or its current owners.
• Issue share capital is the amount of current share capital arising from the sale of shares.
• A lease is a contract to acquire the the use of resources such as property or equipment.
• Limited liability is where if a a business were to go bust and cannot pay its debts owners will only lose their initial investment, and its likely the bank may have to write off the debt
• liquidy is the ability of the company to pay their debts when they are due
• loan collateral is when a loan is secured on something of equivalent value to its amount such as premises or a building.
• Long term finance is money that is borrowed for more than one year
• Owners capital is the money invested by the owner in the business, this may have come from their own personal savings.
• Peer-To-Peer-lending is where individuals lend to other individuals without prior knowledge of them or their business on the internet
• Short-term borrowing is money borrowed for 12 months or less
• Retained profit is the profit after tax that is 'ploughed back' into the business
• Revenue expenditure is spending on business resources that have already been consumed or will be very shortly
• Rights issue is a method of raising finance by issuing new shares to existing shareholders at a discount
• Sale and Leaseback is the the practice of selling assets, such as property or machinery, and leasing them back from the buyer
• Secured loans are loans where the lender requires security, such as property, to provide protection incase the borrower defaults
• Share capital is money introduced into the business through the sale of shares
• Permanent capital is share capital that is never repaid by the company
• a business is undercapitalized if it is not raising enough capital when setting up
• Venture capitalism is the provider of funds for small or medium sized companies that may be considered too risky for other investors
• Unlimited liability is a legal status which means that business owners are liable for all business debts
• Unsecured loans are where the lender has no protection if the borrower fails to repay the money owed
• An unincorporated business is where there is no legal difference between the owner(s) and the business
• What are some advantages of owners capital?

  No stress about payback - its their own money

  its instant - no complex paperwork

  its appealing to other investors as it shows you have confidence in your business
• What are some disadvantages of owners capital?

  Risk, limited resources, and opportunity costs -lost funds to gain a business
• What are the advantages of internal finance?

  no interest or debt to pay back