Finance and Sources of Capital: notes

Types of Capital

• Start-up capital: money needed to open, such as buying equipment and first stock.
• Working capital: money for daily running costs, such as wages and electricity.

Sources of Finance

• Internal sources: from inside the business, such as the owner's savings and retained profit.
• External sources: from outside the business.
• Loan: money borrowed from a bank and repaid with interest over a set time.
• Overdraft: spending more than is in the bank account, up to a limit. It suits short-term needs.
• Microfinance: small loans to small traders who lack bank security.
• Trade credit: buying stock now and paying the supplier later.
• Grant: money given by an organisation that need not be repaid.
• Share capital: money raised by selling shares in a company.

Cost of Borrowing

• Interest: the price of a loan. A $100 loan at 10% interest costs $10 extra in a year.

Banking and Payments

• Services: savings and current accounts, loans and transfers.
• Payment methods: cash, cheque, debit card, bank transfer and mobile money, such as EcoCash.