IV. Text understanding

Exercise 7. Find in the text and translate a passage describing:

1. main sources of funds for business

2. short-term finance and its types

3. long-term finance

4. share issue and types of companies.

Exercise 8. Agree or disagree with the statements:

1. Debt capital is a source of funds which is obtained by selling of part of owner`s interest in a firm.

2. Equity capital is obtained through borrowing.

3. All firms need working and extra capital to stay in business.

4. Short-term finance is available over a period of up to three years and is necessary to cover seasonal variations of a firm`s trading position.

5. Retained profit is the most important source of capital for firms and is also called undistributed or ploughed back profit.

6. Overdraft doesn`t allow the firm to spend more than it has in its account.

7. Leasing is a long-term hiring of machinery.

8. Trade credit means selling debts to a factoring house.

9. Long-term finance concerns with the purchase of fixed assets with a long life.

Exercise 9. Answer the questions:

1. What do firms need capital for?

2. What is the difference between running costs and working capital?

3. What are two main sources of funds for business? How can they be classified?

4. What is short-term finance?

5. What is retained profit? How is it obtained?

6. What are two types of bank loans?

7. How does leasing work?

8. Why is debt factoring considered a form of credit?

9. What is trade credit?

10. How is long-term finance characterized?

11. How can owners increase their capital by share issue?

V. Oral practice:

10. Speak about sources of funds for business using the chart:

Sources of funds

(running costs, working capital, extra capital)

Debt capital

(borrowing)

Equity capital

(sale of interests)

Short-term finance

(necessary to cover normal fluctuations in a firm`s trading position)

Long-term finance

(construction of new buildings, the replacement of plant, or for the purchase of fixed assets with a long life)

Savings

Trade credit

Leasing

Debt factoring

Securities

(share issue)

Bank loans

Overdraft, fixed-term loan

VI. Comprehension.

12. Listen to the text b. Find answers for the questions:

1. What is the major problem of starting new business?

2. Why is obtaining money often difficult for new entrepreneurs?

3. What does capital enables business people?

4. What are the main financial reasons for failure of a small business?

Sources of funds

One of the major problems of new entrepreneurs is misinformation and lack of information about capitalization and financial management. According to most sources, a new entrepreneur has several sources of capital: banks, finance companies; venture capital organization; government agencies and more. But the truth is that obtaining money from these sources is very difficult for most small businesses. The cost of drawing up documents, hiring accountants and lawyers, added to the psychological costs of being turned down by organization after organization, is too high for most entrepreneurs to bear.

Most small business owners get their seed money from personal savings. Sometimes they turn to relatives and friends for backing, often including them into business. Banks are another source, but they often charge a very high rate of interest.