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Business Borrowing and Investing

Business Borrowing and Investing. Objectives:. Distinguish between two different types of capital. Integrate Borrowing into the decision making process. Describe five main tools for evaluating capital. Describe types of loans available to personal and business borrowing. Key Terms:.

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Business Borrowing and Investing

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  1. Business Borrowing and Investing

  2. Objectives: Distinguish between two different types of capital. Integrate Borrowing into the decision making process. Describe five main tools for evaluating capital. Describe types of loans available to personal and business borrowing.

  3. Key Terms: • Capital- Cash or liquid savings, machinery, livestock, buildings and other assets that have a life of more than one year. Examples? • Existing Capital- Equity- Example? • Borrowed Capital – Liability- Example? • Interest- Amount of funds paid to lender for the use of money. • Collateral- Assets used to secure repayment of the loan. • Annual Percentage Rate (APR)- True cost of the loan.

  4. Capital Capital Existing Borrowed (Equity) (Liabilities)

  5. Borrowing and Decision Making How much capital do you need to meet your goals? Planning Deciding Evaluating

  6. Loan Options to Gain Capital • Loan Length- Less than one year = Short term, More than one year = long term goals. • Loans are usually used for three general purposes: • Real estate loans- Land and or buildings are used as collateral. • Non real estate loans- Other loans for business • Personal Loans- Used to purchase personal assets. • Unsecured loans have no collateral and are based on good credit and loan history.

  7. Loan Payment • Loan payments can be separated into two categories. • Principal- The amount borrowed from the lender • Interest- The amount paid to the lender for use of money.

  8. Loan Repayments • Loan repayments can be classified into two categories. • Single Payment- All the principal is payable in one lump sum when the loan is due. • Amortized- The principal and interest payments are made periodically. • Payments usually have an equal total due during a term: • Early payments represent less principal and more interest. • Later payments represent more principal and less interest.

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