Long-Term and Short-Term Financing Options
The document outlines comprehensive information about various financing options available to businesses, both long-term and short-term. These options are crucial for business operations, expansion, and establishment.
Definition: Share Capital is referred to as Permanent capital and comes in two forms - Ordinary shares (equities) and Preference shares.
Highlight: Limited liability encourages shareholder investment, while no guaranteed dividend payments make it a potentially risky investment.
Example: A business might use share capital to purchase assets that can later serve as collateral for bank loans.
Vocabulary: Loan Capital refers to financing from sources like debentures, mortgages, venture capitalists, business angels, and financial institutions.
The document details several financing methods:
Internal Sources:
- Retained Profit: Unused after-tax profits
- Sale of Assets: Disposing of unnecessary business assets
External Sources:
- Government Assistance: Grants and support packages
- Bank Loans: Fixed-term agreements with set payments
- Leasing: Asset usage without ownership
- Trade Credit: Delayed payment terms for purchased goods
- Factoring: Advanced payment against invoices
- Bank Overdraft: Flexible short-term borrowing
Quote: "Limited liability encourages shareholders to invest" - highlighting a key advantage of share capital financing.
