Page 247 - Cambridge IGCSE Business Studies

19 Business finance: needs

and sources

Introduction
Objectives
The main activity of business is the production of goods and services. This activity
In this chapter you will
cannot take place without the resources of land, labour and capital. The purchase
learn about:
of these resources, and all business activity which follows, is not possible without
■ why businesses need finance finance to enable it to take place.

■ the difference between short- In this chapter you will learn about the different sources of finance available to

term and long-term finance businesses for funding a wide range of business activities. You will look at the factors
■ the main sources of capital that influence the choice of finance and how owners and managers may decide on
■ how businesses make the source of finance for their business needs.
financial choices.
Why businesses need finance
KEY TERMS
Businesses need finance for many different activities including:

Start-up capital: the capital
needed by an entrepreneur when ■ Start-up capital to set up the business.
first starting a business. ■ To pay day-to-day expenses of the business such as wages, suppliers of raw
Working capital: the capital materials and fuel expenses. This is known as working capital.
needed to finance the day-to-day 245
■ Purchasing buildings and other non-current (fixed) assets such as machines to
running expenses and pay short-

term debts of a business. replace ones that are no longer working efficiently or are obsolete.
■ To invest in the latest technology. This is known as capital expenditure.
Non-current (fixed) assets:
resources owned by a business ■ To finance expansion of the business.
which will be used for a period ■ To finance research into new products or new markets.
longer than one year, for example
buildings and machinery.
Capital expenditure: spending
by a business on non-current
assets such as machinery or
buildings.

CASE STUDY Start-up capital

Milena started her business – a juice shop – in her
hometown of Palos Blancos, Bolivia. She obtained
start-up capital. Through her hard work, dedication

and business skills she was soon selling enough juice
and milk to purchase two large refrigerators. Th e
growth of her business continued, and Milena took
out an additional loan to buy a refrigerated truck.
Today, Milena has plans to expand her business to
the next town; she’s proud of her ability to create jobs
for others.
Source: Adapted from www.grameenfoundation.org/ Selling juice from fresh fruits
impact/personal-stories/milena