Transcript Year10 Business
Unit 1 Topic 1.3.6
Must learn: the main sources of finance for a small business starting-up Should learn: short- term sources of finance Could learn: long- term sources of finances in the context of a private limited company (Ltd)
Where can a new business obtain finance from?
Sources of money that has to be repaid either immediately or fairly quickly, such as an overdraft, paid back within a year.
An overdraft facility is where you can withdrawal more money than you actually have in an account. An overdraft of £2,000 would let you go £2000 ‘in the red’ which may help a business in the short term.
Personal overdrafts tend to be between £100-£1000.
TRADE CREDIT
and services. is when a supplier allows you a period of time (such as 30 days) to pay for goods However, your customers may also expect advantages of this can be cancelled out!
TRADE CREDIT
so the
A source of finance where a business is able to receive cash immediately for the invoices it has issued from a FACTOR such as a bank instead of waiting the typical 30 days to be paid. A FACTOR is a financial service company like a bank and they charge a fee for this service.
Long term finance is either never repaid or repaid over a long period of time (5-25 years) Long term sources include: Owners own capital/savings Share capital Venture capitalists Loans Mortgages Retained profit Leasing Grants
When the owner uses his or her own savings to invest in the business. Usually a sole trader will start up a business with their own savings.
A share in the business is sold to an individual or another business. This money is then used to purchase new assets or to expand. The business changes from a Ltd to a plc and shares can be traded on the stock market.
A person or company who buys shares in a business that they hope will grow fast. In the long term, they will sell the shares at a profit and often reinvest in other companies.
An amount of money is borrowed from the bank and then repaid with interest over a set period of time. The loan period can range from 1 year to 10 years. Look for the APR amount – the higher the APR the more interest is paid.
When a business sells off fixed and current assets which it no longer needs in order to raise finance for new projects.
When a business makes a profit and keeps it rather than spending it, it is called
RETAINED PROFIT
The retained profit is then available to use within the business, for developing the business or for a ‘rainy day’.
Businesses can rent equipment from other companies rather than buying them. These rental agreements are referred to as LEASING Can you think of any examples?
Some businesses may get grants to help them start up (especially small businesses). Organisation such as the Princes Trust give business start up grants to young people up to the age of 30. Grants are also available from the government and the European Union.
Grants DO NOT have to be repaid