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E.g.: Leasing
Owners Savings
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.
Sale of Assets
When a business sells off fixed and current assets which it no longer needs, in order to raise finance for new projects.
Retained Profit
Profit kept after all expenses and dividends are paid out. The profit left can be ploughed back into the business for expansion purposes. It belongs to the business.
Overdraft
The bank allows a business to go overdrawn up to an agreed amount. The business only pays interest on the amount overdrawn. Amt. of interest paid is usually higher than a bank loan; so caution is needed when using an overdraft. Usually used to pay small bills and expenses.
Trade Credit
When suppliers give time to pay for supplies and stock
usually with a 30 day payment period. This can be difficult for sole traders to acquire in the early days.
Leasing
When an asset is used by a business but is never owned by the business. The business pays a monthly amount to use the asset in return they have access to the latest equipment and support if the asset breaks or needs repair. Many businesses lease cars or computer equipment.
Hire Purchase
When an asset is bought over a period of time with repayments made each month until, the final payment On final payment, the item becomes the property of the firm. This spreads the cost of purchasing assets
Bank Loan
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 year.
Look for the APR amount the higher the APR the more interest is paid.
Mortgage
This is a long term loan (usually over 25 years) provided by a bank/building society in order to buy property. Usually secured on the property itself so if repayments are not made the mortgage lender can repossess the property
Venture Capital
Venture capitalists are groups of (generally very wealthy) individuals or companies specifically set up to invest in developing companies (invest in small, risky business) In return the venture capitalist gets some say in the running of the company as well as a share in the profits made business loses some of its independence in decision making.
Unit trusts:
Money received from investors is added to a fund invested in securities appropriate to investors. The fund is divided into units, each representing a share of fund ( open ended ) Specialize in overseas investments and new issues of securities through stock exchange. Units can be bought and sold through the unit trust managers
Building societies
Lending to individuals to enable them to buy their homes Funds are borrowed on short term from savers and loaned for the long term to borrowers Risk is smoothed by variability of interest rate charged to borrowers Assistance is also given to small businesses to purchase premises
Discount houses:
traditional function is to provide short tem finance by discounting bills of exchange but they have extended their activities to include govt. treasury bills,local authority bonds and certificates of deposit.
Merchant banks
These were originally merchants who developed lending businesses Services are extensive include: advice on export financing, foreign exchange dealing corporate financial planning, leasing finance, hire purchase venture and development capital for small business
Foreign Banks
Branches of overseas banks compete with commercial banks in provision with short-medium-term financeParticularly for overseas trade and investment
Finance houses
Deal mainly in hire purchase and lease financing Short term depositers provide most of funds Lends over medium term, risk adjusted on charges
Leasing companies
Majority are subsidiaries of commercial banks, merchant banks, finance houses Some are independent in finance and leasing association They specialize in lease finance
Reference
Financial management - Geoffrey Knott, 4th edition