16. Business Finance - AS Level

Rights issue

Existing shareholders are given the right to buy additional shares at a discounted price

Long-term loans

Loans that do not have to be repaid for at least one year

Capital expenditure

The purchase of assets that are expected to last for more than one year, such as building and machinery

Crowd funding

The use of small amounts of capital from a large number of individuals to finance a new business venture

Hire purchase

An asset is sold to a company that agrees to pay fixed repayments over an agreed time period - the asset belongs to the company

Business plan

A detailed documents giving evidence about a new or existing business, and that aims to convince external lenders and investors to extend finance to the business

Overdraft

Bank agrees to a business borrowing up to an agreed limit as and when required

Long-term bonds or debentures

Bonds issued by companies to raise debt finance, often with a fixed rate of interest

Leasing

Obtaining the use of equipment or vehicles and paying a rental or leasing charge over a fixed period, this avoids the need for the business to raise long-term capital to buy the asset; ownership remains with the leasing company

Equity finance

Permanent finance raised by companies through the sale of shares

Microfinance

Providing financial services for poor and low-income customers who do not have access to banking services, such as loans and overdrafts offered by traditional commercial banks

Venture capital

Risk capital invested in business start-ups or expanding small businesses that have good profit potential but do not find it easy to gain finance from other sources

Factoring

Selling of claims over trade receivables to a debt factor in exchange for immediate liquidity - only a proportion of the value of the debts will be received as cash

Revenue expenditure

Spending on all costs and assets other than fixed assets and includes wages and salaries and materials bought for stock

Liquidity

The ability of a firm to be able to pay its short-term debts

Start-up capital

The capital needed by an entrepreneur to set up a business

Working capital

The capital needed to pay for raw materials, day-to-day running costs and credit offered to customers.

Liquidation

When a firm ceases trading and its assets are sold for cash to pay suppliers and other creditors