Remember for the exam:
Short-term Funding
Short-term funding refers to finance that is required for a period of up to 12 months. Short-term finance is usually used to finance day-to-day expenses, such as salaries, inventory, and supplier payments.
You need to remember these short-term funding methods for your exam:
Trade Credit is when a business buys goods or services from a supplier and is allowed to pay for them later. It is a form of credit that enables businesses to purchase goods and services without having to pay for them immediately.
Factoring is when a business sells its invoices to a third party at a discount. The third party then collects the money owed by the customers of the business. Factoring provides businesses with immediate Cash flow and reduces the risk of bad debts.
Overdrafts are a facility provided by a bank that allows a business to go into negative up to an agreed limit. Overdrafts are useful for short-term cash flow problems, but they can be expensive due to high interest rates.
Credit Cards can be used to make purchases and pay bills. Credit cards provide short-term credit and can be useful for managing day-to-day expenses. However, they can also be expensive due to high interest rates.
Long-term Funding
Long-term funding refers to finance that is required for a period of more than 12 months. Long-term finance is used to finance capital investments, such as machinery, property, and vehicles.
You need to remember these long-term funding methods for your exam:
Personal Savings can be used to finance a business. This is a low-Cost form of finance, but it is risky because the business owner is personally liable for the business debts.
Bank loans are a form of finance provided by a bank that is repaid over a period of time with interest. Bank loans are a common form of long-term finance and can be used for a variety of purposes.
Leasing is when a business rents equipment, machinery, or property for a set period of time. Leasing provides businesses with access to expensive equipment without having to purchase it outright.
Loans from Friends or Family can be borrowed to finance a business. This is a low-cost form of finance, but it can put a strain on personal relationships.
Grants are a form of finance provided by the government or non-government organizations for specific purposes, such as research and development, training, and environmental projects. Grants do not need to be repaid, but they are difficult to obtain.
Business Angel Funding is when an individual investor provides finance to a business in exchange for equity. Business angels often provide expertise and mentorship in addition to finance.
Crowdfunding is when a large number of people contribute small amounts of money to finance a business. Crowdfunding is becoming an increasingly popular form of finance, but it can be difficult to attract investors.
Retained Profits are profits that a business chooses to reinvest in the business rather than distribute to shareholders. Retained profits are a low-cost form of finance, but they are only available to profitable businesses.
