IB Business Management 3.2 Sources of Finance Key Definitions

A bank loan is a sum of money provided by a bank to a business, which is repaid with interest over an agreed period.

Business angels are wealthy individuals who invest personal funds in exchange for equity or a share of future profits.

Crowdfunding involves raising small amounts of money from a large number of individuals, typically via online platforms.

A debenture is a long-term loan issued by businesses to raise capital, often with fixed interest payments over a specific term.

Leasing allows businesses to use assets like equipment or vehicles without purchasing them outright.

Loan capital refers to funds borrowed from banks or financial institutions over a medium to long term, repaid over time with interest.

Microfinance provides small loans and financial services to entrepreneurs in developing regions.

A mortgage is a long-term loan designed specifically for purchasing property, where the property itself serves as collateral.

Opportunity cost is the value of the next best alternative that is forgone when a decision is made to pursue one option over another. It reflects the benefits that could have been obtained if a different decision or investment had been chosen.

An overdraft allows businesses to withdraw more money than is available in their bank account, up to an agreed limit.

Personal funds are the owner's personal savings used to finance the business.

Retained profit is the portion of a business's earnings kept within the company instead of being distributed to shareholders or owners.

The portion of net profit that is kept in the business for reinvestment rather than distributed as dividends.

Sale of assets involves selling non-essential or underutilized assets to generate capital.

Share capital is a form of business finance where companies raise funds by selling shares, which represent ownership in the company. Each share is a certificate of partial ownership.

Trade credit allows businesses to delay payment for goods or services, typically for 30 to 90 days.

Venture capital is a form of funding provided to small and medium-sized businesses that are often considered high-risk but have significant growth potential.