2. Students should be able to:  Understand and explain the different sources of finance available to a business.

3.  Businesses need finance to establish, operate and expand.  Finance can come internal sources (owners) or externally (debt – borrowings).

4.  Businesses need finance for a variety of purposes such as:  Setting up the business. Eg. Plant and equipment, vehicles etc.  Working capital – funds required to enable the business to operate from day-to-day. Eg. Purchasing stock.  Capital expenditure. Eg. New machinery.

5.  Two types:  Capital which is contributed by owners. Usually in the form of cash but can be non- cash assets.  Retained earnings – undistributed profits.  Benefits  Does not have to be repaid nor any ongoing cost.  Disadvantages  Limited availability.

6.  Liable to payback funds and costs associated.  Examples:  Overdraft – can make payments in excess of bank account. Most common form of temporary finance for working capital.  Term loan – borrowing for a set time which has to be repaid. Used for long-term funding of non-current assets. Can be secured or unsecured.

7.  Lease finance – agreement to rent equipment for fixed period of time. Use the asset but don’t have ownership. Asset can be returned or purchased at end of period.  Trade credit – buy items on credit with given period to pay supplier.