APT Initiatives
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Minimising Workloads, Maximising Performance
Established in 1999

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Loan capital (or loans)

Where a business is advanced a set figure and repays the amount over an agreed period of time, at an agreed rate of interest. Interest is fixed or variable, although many lenders provide the opportunity of switching from one to the other at pre-specified periods. Most loans are short to medium term, and are used to purchase fixed assets or fund expansion into new markets. The lender will mainly be concerned with a business’s ability to meet interest payments (ie liquidity of the business), and will show interest in any fixed assets eg land, buildings, plant and machinery, that could be used as security for the loan, ie handed over to the bank if the business is unable to repay the loan. The amount advanced will depend on the security offered. The greater the perceived risk, the higher the interest rate charged. Unsecured loans are possible but rare. In such cases, the interest charged would be considerably higher to compensate for the lack of security.

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