Business Studies Collins Revision Guide. - StudyGuide.PK

SOURCES OF FINANCE (4)Long term●●This type of finance would be used to pay for setting up a newbusiness or a large-scale expansion. It can be used to pay forbuildings or assets that will last for the length of the loan.Sources include:Long-term loansMortgageSale andleasebackDebenturesCase studyA typical small businessAs for medium-term loan but the lender will make sure that he hassufficient security against the loan.Loan used for land and buildings. Usually for very large sumsof money.Can be a fixed or variable interest rate.Land or buildings may be sold to a company and then leased back.Interest is charged and the business no longer owns the asset.Large public companies can borrow through the City of London.Interest is charged but may be less than other lenders.Jane’s CaféJane Whitchurch used her redundancy money and her savings to set up hercafé in 1993. She was able to obtain a mortgage lasting 25 years for thebuilding. She was able to lease the majority of her kitchen equipment from aspecialist shop. The food she needed was bought from a wholesaler, whogave her 30 days trade credit.After five years steady trade she decided to use some of the profit she hadretained over the years to expand her business. She decided to obtain amedium-term bank loan and buy another café in a nearby town. She used anoverdraft to help her cash flow problems, whilst she spent a large sum ofmoney advertising her new premises.31