Business Unit 2

• Collateral 


  An asset that might be sold to pay a lender when a loan cannot be repaid
• Capital 


  The money provided by the owners in the business
• Bank Overdraft 


  An agreement with a bank that means that a business can spend more than it has in its account (going overdrawn) The overdraft limit is agreed and interest is only charged if it goes overdrawn
• Authorised share Capital


  The maximum amount that can be legally raised
• Capital Expenditure


  Spending on business resources that can be used repeatedly over a period of time
• Capital gain


  The profit made from selling a share for more than it was bought
• Asset 


  This is an item that the business owns that could be sold to raise cash eg a van or machine
• Crowd Funding


  Where a large group of individuals invest in a business or project on the internet, avoiding the use of a bank
• Current ratio


  Shows investors how many times the company can pay its current liabilities (short term debts) out of its current assets
• Debenture


  A long term loan for a business
• Equities


  Another name for ordinary share
• External finance


  Money raised from outside the business
• Gearing


  the amount of funding in a business which is leant from a bank versus funding which has been acquried from shareholders
• Incorporated Business 


  A business model in which the business and owners have separate legal identities
• interest repayments 


  On a loan 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


  Money generated by the business or its current owners
• issue share capital


  Amount of current share capital arising from the sale of shares
• Lease


  A contract to acquire the use of resources such as poverty or equipment
• Limited liability


  If a business goes bust and cannot repay its debts the owners will not only lose their initial investment, the bank will not be able to chase the owners for any more (such as equity or a house) it is therefore likely that the bank may have to write off the debt
• Liquidity


  The ability of the company to pay their debts when they are due
• Loan collateral


  The loan will need to be secured on something worth equivalent value such as premises or a building
• Long-term Finance 


  money borrowed for more than one year
• Owners capital 


  this is the money invested by the owner in the business, this may have come from their own personal savings
• P2PL


  Where individuals lend to other individuals without prior knowledge of them on the internet
• Short-term Borrowing


  Money borrowed for 12 months or less
• Retained profit 


  Profit after tax that is 'ploughed back' into the business
• Revenue expenditure


  Spending on business resources that have already been consumed or will be very shortly
• Rights issue 


  Issuing new shares to existing shareholders at a discount
• Sale and Leaseback


  the practice of selling assets, such as property or machinery and leasing them back from the buyer
• secured loans


  A loan where the lender requires security, such as property, to provide protection in case the borrower defaults
• Share capital


  Money introduces into the business through the sale of shares
• Permanent capital


  Share capital that is never repaid by the company
• undercapitalised


  a business not raising enough capital when setting up
• venture capitalism


  providers of funds for small or medium sized companies that may be considered too risky for other investors
• unlimited liability 


  A legal status which means that business owners are liable for all business debts
• unsecured loans 


  Where the lender has no protection if the borrower fails to repay the money owed
• unincorperated business


  A business in which there is no legal difference between the owner(s) and the business
• Owners capital 


  The stakes an owner has in a business. the owner may have used savings or a redundancy pay out to start up the business. This in theory is still owed back to the owner although they may never take it back out in the lifetime of the business.
• Owners Capital is good because they do not have to stress about payback, there is no interest and it is appealing to investors as it shows confidence in your business
• Owners Capital can be bad because it is risky, leaves you with less money and the opportunity cost - lose funds, gain business