Finance
Business: Cambridge International GCSE (2027 Exams), topic 5.1.1
Why Businesses Need Finance
Businesses need finance for several key reasons:
Start-up capital
- Businesses need start-up capital to set up a new business, such as buying equipment, stock, or premises.
- For example, a bakery needs ovens, ingredients, and a shop space before it can open.
Capital for expansion
- Businesses need capital for expansion to grow, such as opening new stores, buying new machinery, or increasing production.
- For example, a café may need money to open a second branch or invest in delivery vehicles.
Additional working capital
- Businesses need additional working capital to cover day-to-day expenses.
- Such as wages, rent, and bills.
- This ensures the business can operate smoothly without running out of cash.
- For example, a company may use working capital to pay suppliers while waiting for customer payments.
Short-term finance
- Short-term finance is needed for less than one year.
- It usually covers working capital or small, immediate expenses.
- For example, a business may take out an overdraft to pay next month’s wages.
Long-term finance
- Long-term finance is needed for more than one year.
- It usually covers big investments or business expansion.
- For example, a business may take a loan to buy a delivery van or expand a factory.
Test yourself on Finance
Why do businesses need start-up capital?
Which of the following is an example of long-term finance?
What is the main purpose of additional working capital?