Sources of Finance

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  • Created by: natmorg
  • Created on: 19-09-13 20:00

Retained Profit

This means that the company has created a surplus after tax, employment costs and buying stock. It is internal because it is the profits that the company have created and there are is no external interference. It is interest free because it is not a loan or mortgage, it is a surplus of cash which has been created by good business and there are no interest rates that need to be paid. It is variable because you are not guaranteed to have retained profits at the end of every financial quarter.

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sale of assets

It is internal and this means that if a company has assets like a bouncy castle company then if they sold a bouncy castle to raise capital for the company then that would be a sale of assets. It is interest free of course so there is no fee to be paid on the selling of assets; it is purely a quick capital raiser.

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If you had £10,000 in a bank account and you needed to spend £15,000 then what will happen is you will apply for an overdraft and you need to place assurances that you can pay it back. You become liable so if you do not pay it back then you may have some possessions taken away.

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A fixed interest stock secured on the assets of a company. In the event of the liquidation of the company, the owners of the debentures would be paid before the holders of loan stock, preference shares and ordinary shares but after the Inland Revenue, the liquidator and the banks.

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bank loan

An arrangement in which a lender gives money or property to a borrower, and the borrower agrees to return the property or repay the money, usually along with interest, at some future point(s) in time. Usually, there is a predetermined time for repaying a loan, and generally the lender has to bear the risk that the borrower may not repay a loan

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Family & Friends

This source of finance is simply borrowing money from family and friends instead of taking out a loan. this would be a good source of finance as you will not be at risk of having property or money taken from you for not repaying on time.

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Hire Purchase


A system by which a buyer pays for a thing in regular installments while enjoying the use of it. During the repayment period, ownership of the item does not pass to the buyer. Upon the full payment of the loan, the title passes to the buyer.


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Written or implied contract by which an owner (the lessor) of a specific assest (such as land or buildings) grants a second party the right to its exclusive possessions and use for a specific period under specified conditions, in return for specified periodic rental or lease payments.

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Bounty, contributiongift, or subsidy (in cash) bestowed by a government or other organization (called the grantor) for specified purposes to a recipient (called the grantee).

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A person/persons would sell on their goods to make a profit

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An arrangement where the seller of an asset leases back the same asset from the purchaser. In a leaseback arrangement, the specifics of the arrangement are made immediately after the sale of the asset, with the amount of the payments and the time period specified. Essentially, the seller of the asset becomes the lessee and the purchaser becomes the lessor in this arrangement.

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