Finance Essay, Research Paper
Finance is a) the management of
money, and b) money resources. All businesses need short-term finance from the
very beginning to start up the business and to cover day-to-day running costs.
This provides the business with working capital. However businesses also need
long-term capital to help them to grow and expand, and this is paid back over a
number of years. Without finance a business would find it difficult to
accomplish anything, for example someone who decided to start up a shop would
need finance at first to just buy the shop and the stock. Even a window cleaner
would need finance to buy equipment such as ladders and buckets. But this can
be taken onto a larger scale, as all businesses need finance at some
point.Sources of finance can be both internal and external. Some
external sources of finance are:·
Borrowing money from family or friends without paying
interest. ·
A loan from a bank or a building society, an agreed amount
is borrowed and repaid over a fixed period of time with interest. ·
An overdraft. (A predetermined credit limit which needs to
be paid back within a certain amount of time)The best sources of finance for my business would probably
be a combination of savings, a loan, and an overdraft.·
Savings are a good way to start a business as you are
under no obligation to pay anything back to anyo
put into the business is limited by the amount of money you have saved up, so
other sources of finance are usually needed to back this up. ·
A loan is a good way of obtaining finance, providing you
can write up a suitable business plan to get a loan from the bank. However
loans do have to be paid back with added interest, which can add up to quite a
large amount. ·
An overdraft can be a good way of achieving some extra
pre-agreed money from a bank, for example if you over-spent slightly you’d
still be able to keep afloat until you were able to obtain some more money.
However this needs to be paid back within a given amount of time, for example a
month, Over drafts are usually paid off when you next receive some income,
which for most people is approximately every month.I am going to get a loan of £25,000 to begin my business,
from the bank Nat West, which I will pay back over a period of five years. I am
going to combine this with savings of approximately £10,000, which should be
enough to get my business up and running for the first year. After the first
year the profits that I should make will go into running the business for my
second year of business. I will pay the loan back at a rate of 5.7%, which will
mean I?m eventually repaying just over £32,000, at a cost of about £6500 per
year, or £535 per month.