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Sources of finance and interest
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Businesses need money to start and to grow. Each source of finance suits different situations.
Short-term sources
Overdraft: take more money out of a bank account than you have, up to a limit. Flexible, but high interest.
Trade credit: buy now from suppliers and pay later, often within 30 to 90 days.
Trade credit: buy now from suppliers and pay later, often within 30 to 90 days.
Long-term sources
Personal savings: no interest, but the owner risks their own money.
Venture capital: investors give money in exchange for a share of the business.
Share capital: selling shares in the business.
Loans: borrow a fixed sum and repay with interest.
Crowdfunding: many people each give small amounts, often online.
Retained profit: profit kept in the business from earlier years.
Venture capital: investors give money in exchange for a share of the business.
Share capital: selling shares in the business.
Loans: borrow a fixed sum and repay with interest.
Crowdfunding: many people each give small amounts, often online.
Retained profit: profit kept in the business from earlier years.
Interest on loans
Interest (%) = (total repayment − amount borrowed) ÷ amount borrowed × 100
A business borrows £5000 and repays £5600 in total. Find the interest rate.
- Interest paid = 5600 − 5000 = £600
- 600 ÷ 5000 × 100
- = 12%
Answer: 12%
Short-term: overdraft, trade credit. Long-term: savings, venture capital, shares, loans, crowdfunding, retained profit. Interest % = (repayment − borrowed) ÷ borrowed × 100.
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