Bank loans

• What is a bank loan?

  A sum borrowed with interest to be repaid
• How does a business repay a bank loan?

  With interest over an agreed period
• If a business borrows £10,000, how long could they agree to repay it?

  In six years
• Why are bank loans considered a long-term source of finance?

  They are repaid over several years
• Who commonly uses bank loans?

  New and startup businesses
• What type of source of finance is a bank loan?

  External source of finance
• Why do new businesses prefer bank loans?

  They lack access to retained profits
• How can bank loans be used for business expansion?

  To open more shops or hire more employees
• What is a key advantage of not giving up equity with bank loans?

  You maintain control of your business
• What are the pros of bank loans?

  • No equity share given up
  • Lower interest rates than overdrafts
  • Customizable repayment terms
  • Can improve credit rating with repayments
  • Increases net assets on balance sheet
• How do bank loans compare to overdrafts in terms of interest rates?

  Bank loans likely have lower interest rates
• What can businesses customize in a bank loan?

  Repayment terms and schedule
• What happens to your credit rating if you consistently repay a bank loan?

  It may improve your credit rating
• How do bank loans affect a business's balance sheet?

  They increase net assets on the balance sheet
• What are the cons of bank loans?

  • Assets may be taken if repayments fail
  • No flexibility in repayment terms
  • Poor repayment affects future credit options
  • Increases business gearing due to debt
• What risk do you face if you fail to repay a bank loan?

  You could lose your assets
• Why is limited liability important when taking out a bank loan?

  It protects personal assets from business debts
• What is a disadvantage of bank loans regarding repayment terms?

  There is no flexibility in repayment terms
• What happens if you fail to make bank loan repayments?

  Your credit rating may worsen
• How does taking out a bank loan affect a business's gearing?

  It increases the gearing of the business
• What is the overall purpose of bank loans for businesses?

  • To finance expansion
  • To cover operational costs
  • To invest in new projects
  • To improve cash flow