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Reviewed by Sep 09, 2021| Updated on
Interest may be paid as simple interest or as compound interest. Simple interest is paid at a fixed rate per annum. Compounding allows for the calculation of interest on the principal and the accumulated interest.
Borrowing of money offers ease of funds for working capital requirements, business expansion and asset purchases. In the case of borrowings, the interest payments are tax-deductible from the income. The interest payments offer leverage for the business to generate more cash flows.