Chap 8. Household and business finance

• Source of finance 


  •short - up to one year

  •medium - 1 to 5 years

  •long - over 5 years
• Short term sources

  1. Bank overdraft- permission by bank to withdraw more money than in it.
  2. Credit cards - goods paid with credit card. Buy Now, Pay Later
  3. Treade credit- purchase to stock but pay later.
  4. Accused expenses- use services without immediate payment.
  5. Factoring- raise money by selling right to collect payment.
  6. Invoice discounting- arrangement between firm and bank.
• Medium term sources

  1. Medium term loan- repaid monthly
  2. Hire purchase- buying asset and delivery, installments.
  3. Leasing- asset rented
• Long term sources

  1. Owners capital- brought into business by owner.
  2. Equity capital- selling shares.
  3. Retained earnings-reserves/profits saved.
  4. Mortgage- purchase property.
  5. Debentures-loan secured on companies assets.
  6. Government finance- free gift under specific purpose.
  7. Venture capital- share expertise.
• Equity capital

  1. Ordinary shares - dividend- after preference. Capital- last if company fails. Risk- vary. Voting- one vote per share.
  2. Preference shares- dividend- before ordinary. Capital- ahead of ordinary. Risk- fixed. Voting- non.
• Cash flow forecast: written plan sets out expected future cash receipts and payments over a period of time. It helps the business to identify times when there is a cash surplus or deficit in the future.
• Select finance 


  • purpose- why needed

  • amount of finance- enough

  •cost- cheapest

  •risk- repay difficulties
• Qualify for a loan


  •character - honest and responsible.

  •capacity- sufficient income.

  •collateral- asset to secure.

  •credit rating- good history of loans
• Similarity in household and business finance

  •cash flow forecast

  •accurate records

  •financial services

  •Similarity source

  •surplus or deficit
• Differences in household and business finance 


  •business deals with larger amount of finance.

  •business access to additional sources.

  •business cash flow is more complex.