Unit 2. Business Resources. Assignment 3
Africa Alive, the role of financial resources
P4
Internal finance definitions
Internal finance is money being used from within the business such as profits or the owner’s own
money.
Owner’s savings is when business owners invest their own money in the business. This is normally
done when starting a business and this is good because the owner keeps complete ownership of
their business.
Capital from profits is the money that a business has as profits from their function. This is using the
income they make to invest back into the business.
External finance definitions
External finance is money being obtained from outside investors or lenders and not from a
business’s internal reserves.
Banks and building societies are able to offer loans, business accounts, commercial mortgages and
overdraft facilities, based on the business plan. Interest is payable on the predicted risk of the
venture and some security will need to be provided, for example, assets such as a house.
Leasing means that a business can pay every month or so to make use of certain equipment. The
business does not own the equipment at the end of the lease. Leasing is often used by companies for
vehicles.
Hire Purchase means that resources can be used by the business while they are being payed for to a
finance company. Until the last payment is made on the agreement, the resource is not owned by
the business and if the payments are not made the finance company can take them back.
Venture capitalists are people who invest in business ventures, usually in return for a share of the
ownership. They normally have little involvement in the everyday running of the business and are
just looking for the business to succeed so their shares are worth more money.
Business angels are people who invest in business ventures, again usually in return for a share of the
ownership. They normally want to get involved in the running of the business and could mentor the
business owner from the start of the business.
Share issues are a good way for companies to raise finance. Small companies can issue shares when
forming a limited company (Ltd) but cannot be offered to the general public. Public limited
companies (PLC) can float their shares on the stock exchange and sell to the general public, this can
raise large sums of money.
Factoring means that a business sells its debt to another company and receives some of the money
immediately. The debt factoring company collects the debts and takes a percentage cut for this
service.
Grants are money given to a business that does not have to be payed back. This money normally has
to be used for a specific purchase such as a new vehicle.
Africa Alive, the role of financial resources
P4
Internal finance definitions
Internal finance is money being used from within the business such as profits or the owner’s own
money.
Owner’s savings is when business owners invest their own money in the business. This is normally
done when starting a business and this is good because the owner keeps complete ownership of
their business.
Capital from profits is the money that a business has as profits from their function. This is using the
income they make to invest back into the business.
External finance definitions
External finance is money being obtained from outside investors or lenders and not from a
business’s internal reserves.
Banks and building societies are able to offer loans, business accounts, commercial mortgages and
overdraft facilities, based on the business plan. Interest is payable on the predicted risk of the
venture and some security will need to be provided, for example, assets such as a house.
Leasing means that a business can pay every month or so to make use of certain equipment. The
business does not own the equipment at the end of the lease. Leasing is often used by companies for
vehicles.
Hire Purchase means that resources can be used by the business while they are being payed for to a
finance company. Until the last payment is made on the agreement, the resource is not owned by
the business and if the payments are not made the finance company can take them back.
Venture capitalists are people who invest in business ventures, usually in return for a share of the
ownership. They normally have little involvement in the everyday running of the business and are
just looking for the business to succeed so their shares are worth more money.
Business angels are people who invest in business ventures, again usually in return for a share of the
ownership. They normally want to get involved in the running of the business and could mentor the
business owner from the start of the business.
Share issues are a good way for companies to raise finance. Small companies can issue shares when
forming a limited company (Ltd) but cannot be offered to the general public. Public limited
companies (PLC) can float their shares on the stock exchange and sell to the general public, this can
raise large sums of money.
Factoring means that a business sells its debt to another company and receives some of the money
immediately. The debt factoring company collects the debts and takes a percentage cut for this
service.
Grants are money given to a business that does not have to be payed back. This money normally has
to be used for a specific purchase such as a new vehicle.
