2.1

• 1. finance appropriate for unlimited liability businesses:

  • Personal savings
  • Retained profit
  • Mortgages
  • Unsecured bank loans
  • Peer-to-peer lending
  • Crowd funding
  • Bank overdraft
  • Grants
• 2. Personal savings:

  small businesses owners most likely use their own money to set up a business, important source of finance.
• 3. Retained profit

  can only be used if the business becomes established and survives. as business develops, must generate enough profits to support both the owner and future business investments. The scope for retained profit is restricted.
• 4. Mortgage

  use the owners house as collateral for a business loan. Provides a long-term source of finance. but owners at risk if business goes into debt and fails, owners can suffer serious financial hardship, such as losing the house.
• 5. unsecured bank loans

  Banks might advance bank loans to established businesses. May depend on financial climate at the time of the request. Owners must be prepared to produce detailed bank loans.
• 6. peer-to-peer lending

  Small business owners can raise finance through dedicated websites from those interested in lending money to their enterprise, avoiding need for the bank.
• 7. Crowd funding

  can provide long-term finance for businesses. Once developed can become very popular source.
• 8. Bank overdraft

  Size of overdraft varies. Established and profitable businesses will have access to much larger overdrafts than those that are not.
• 9. Grants

  Can provide a 'free' source of finance. But businesses have to prove that they qualify for grants and some owners might be put off by lengthy application processes.
• 10. Finance appropriate for limited liability businesses:

  • Share capital
  • Debenture
  • Retained profits
  • Venture capitalists
  • Business angels
  • Other sources
• 11. Share capital

  Sale of shares allows them to raise large amounts of capital. Provided by the owners of the business from their own resources. Once shares are purchased, money raised is not normally repaid to shareholders, so capital remains in the business for as long as it is trading.
• 12. Debentures

  PLC's can raise large amounts of money by selling debentures. Can be very long-term(up to 30 years).
• 13. Retained profit

  Around half of all businesses finance comes from retained profit. some large companies have hundreds of millions of pounds in cash, accumulated over the years. Likely to be used by the business in the future.
• 14. venture capitalists

  majority of finance provided by venture capitalists finds its way to limited companies. Because they usually take share in the business, thereby having some control over key decisions. They also like to invest larger amounts of money than business angels. But also prepared to invest in small & medium sized enterprise's.
• 15. Business angels

  May provide funds for both limited and unlimited businesses. Normally takes a share in the business, does not mean they will avoid sale traders and partnerships. Also more inclined to invest at an earlier stage then venture capitalists. Difficult to find.
• 16. other sources

  likely to use bank overdrafts, trade credit, leasing, unsecured bank loans, mortgages and grants.
• 17. Capital

  money provided by the owners in a business
• 18. Capital expenditure

  Spending on business resources that can be used repeatedly over a period of time.
• 19. Internal finance

  money generated by the business
• 20. Sale and leaseback

  The practise of selling assets, such as property or machinery and leasing them back from the buyer.
• 21. Insolvency

  a business that is unable to pay its debts as they have run out of money.
• 22. long term finance


  Finances the whole business over many years
• 23. medium term finance

  Finance major projects or assets with a long life
• 24. Short term finance


  finance day to day trading of the business
• 25. long term examples:

  • share capital
  • retained profit
  • venture capital
  • mortgages
  • long-term bank loans
• 26. Medium term examples:

  • Bank loans
  • Government grants
  • leasing
  • hire purchase
• 27. short term examples:

  • Bank overdraft
  • Trade credit
  • Short term bank loans