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2.1.2 External finance, With debt finance, you're required to repay…
2.1.2 External finance
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but you have to pay interest, putting you in debt and may lose control through shares
Bank loan
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advantages
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no shares needed to be given up (not a form of equity, its a form of long term debt) - allows owner to keep control
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able to agree on bespoke needs to business e.g repayment agreement terms that make sense + predicted profitability for the future + how long you need + when
frequent repayments = may improve credit score/rating = enabling you to get further external sources of finance in terms of long term debt
long term source = will be visible on your balance sheet = increases your net assets = increases net worth of business
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disadvantages
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if failed to pay = will worsen credit score - limits sources of finances you may be eligible for in the future
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With debt finance, you're required to repay the money plus interest over a set period of time, typically in monthly instalments. Equity finance, on the other hand, carries no repayment obligation, so more money can be channelled into growing your business.