- Created by: Mitchell Jackson
- Created on: 04-02-19 14:30
Uses of Short-Term Finance
- Get through periods when cash flow is poor for seasonal reasons.
- Bridge gaps when large customers delay payment, leaving no cash coming in to pay the bills.
- Provide the extra cash needed when a sudden, rush order requires a large sum to buy raw materials and pay overtime wages.
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Sources of Short-Term Finance
- The most common form of finance.
- The bank grants the business an ovedraft facility.
- Key features of a bank overdraft are:
- Variable interest rate
- The bank can demand full repayment of an overdraft within 24 hours.
- Small firms rely highly on good relationships with their suppliers.
- For small start-ups, it is often impossible to obtain credit at the start.
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Uses of Long-Term Finance
- Provide start-up capital to finance the business for its whole life span.
- Finance the purchase of assets with a long life, such as property and buildings.
- Provide capital for expoansion, such as building a new, bigger factory or buying up another business.
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Sources of Long-Term Finance
- The owners own money.
- Raising money by selling part ownership of the business.
- A combination of share capital and loan capital.
- Provided by an investor willing to take a chance on the success of a small to medium-sized business.
- Profit kept within the business.
- Raising capital online from many small investors.
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