Obtaining Finance

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Obtaining Finance

Entrepreneurs need to raise money (finance) to get started and run their own business. Finance will be needed for a range of products.

For example:

- Wages for staff

- Utility bills such as electricity, water and gas

- Rent of premises

- Stock and other supplies

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Sources of Finance - Short term

Short term sources of finance are sources of money for businesses that are borrowed or invested typically for more than a year. You need to know the following:

Overdraft - borrowing money from a bank by drawing more money than is actually in a current account. High rates of interest can be charged for this facility.

Trade credit - where a supplier allows a period of time before the business needs to pay for any supplies received. This can help the cash flow position of a business.

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Sources of Finance - Long term

Long term sources of finance are sources of money for businesses that are borrowed or invested typically for more than a year. You need to now the following:

Personal Savings - Money set aside and not spent by individuals

Loans - Borrowing which has to be repaid with interest over a period of time

Retained profit - Profit which is kept back in the business and used to pay for investment in the business.

Venture Capitalist - Money invested in the business by an individual who hopes to sell their shares to make a profit

Share capitalist - the value of a company owned by shareholders. These receive any profits in the form of dividends

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