Unit 3 Business finance

1. Vocabulary

Exercise 1. Study the vocabulary:

Debt capital борговий капітал

time-tag проміжок часу

borrowing позика

hiring прокат з переходом у власність після сплати, хайрінг

overdraft перевищення кредиту, овердрафт

equity capital капітал в акціях

fluctuations коливання

working capital оборотні кошти

running costs експлуатаційні витрати

share issue випуск акцій

to plough back вкладати отриманий чистий прибуток в розвиток бізнесу

retained profit збережений прибуток

cash-flow рух коштів

fixed-term loan термінова позика

leasing довгострокова оренда обладнання, лізінг

trade credit торговий кредит

debt factoring перепродаж права на стягнення боргів

discount знижка

prompt payment продаж з терміновою оплатою

securities цінні папери

seed money початковий капітал

II Reading

Exercise2. Read and translate:

Text A

Why firms need capital?

All firms need capital to stay in business. As well as money for running costs such as wages, material and rent, they need to have financial reserves. Extra capital may be needed to expand by buying new premises or developing new products. Firms may also need working capital to preserve cash-flow through the business, for instance if there is a time tag between producing goods and services and getting paid for them.

There are two main sources of funds for business – debt capital which is finance obtained through borrowing, and equity capital , obtained by owners` increased investment or by a sale of part of their interests in the firm. Sources of finance may be examined as those mainly for short-term finance, and those for long-term finance.

Short-term finance is available over a period of up to three years. Such finance may be necessary to cover normal fluctuations in a firm`s trading position or possibly seasonal variations. Sources of short-term finance are:

1. Savings – ploughing back the profit into the firm by owners. This is the most important source of capital for firms, accounting for over two thirds of the total. For smaller business it may be the only source of capital. This way is also called retained profit, internal finance or undistributed profit.

2. Bank loans – providing funds for private customers and businesses by banks. Bank lending can be divided into several types:

a). Overdraft. This allows the firm to spend more than it has in its account, up to an agreed limit . The period of the overdraft may be fixed, but often continues indefinitely. This is the cheapest form of borrowing, as the bank only charges interest on the actual sum on a daily basis.

b). Fixed-term loan. This is more suitable for a business wishing to invest in fixed assets such as machinery. A fixed amount is borrowed and paid back over a definite period of time.

3. Leasing. If a firm needs expensive equipment it may consider leasing them through a bank or finance house. The leasing house buys the equipment and hires it out to the user over an agreed period of time. In fact, leasing is a form of borrowing money.

4. Trade credit. In normal course of business, a firm is likely to owe suppliers for goods received. It is a period of time between full form of short-term finance, although it would involve the loss of any discount offered for prompt payment.

5. Debt factoring. Selling debts to a factoring house which then settles them as they arise.

Long-term finance. Finance which may be needed for up to ten years is termed long-term finance. The need may be for the construction of new buildings, the replacement of plant, or for the purchase of fixed assets with a long life

Securities. A business can obtain finance if it is set up by owners as a company. In this case capital may be obtained by issuing stocks and shares for sale. A share is ownership of a part of an enterprise obtained by payment. Owners can increase their capital by making shares in the business available for other people. There are two types of company – the private company and the public, or general public. The public company is more common and is allowed to make an unlimited number of shares.