Factors influencing the choice of finance:

• What are sources of finance used for by a business?

  Funding operations and growth
• What must a business consider when deciding on a source of finance?

  Cost, control, timescale, security
• Equity finance requires the business to repay the investment with interest

  False
• Overdrafts are suitable for funding long-term business growth

  False
• What does the term "cost" refer to in the context of sources of finance?

  Overall cost of finance
• What does security mean in the context of sources of finance?

  Collateral or assets provided
• Retained profits are profits kept within the business rather than paid out as dividends
• An overdraft allows a business to go into a negative balance for a short term.


  True
• Retained profits are cost-effective and maintain full control
• Using equity finance allows the business owner to retain full control of the business

  False
• Leasing or hire purchase allows a business to acquire assets without paying the full cost
• Match the source of finance with its purpose:

  1️⃣ Retained Profits: Funding internal growth

  2️⃣ Loans: Financing large capital expenditures

  3️⃣ Overdrafts: Meeting short-term cash flow gaps

  4️⃣ Leasing: Acquiring assets without upfront cost
• What is the overall cost of finance called?

  Cost
• The timescale refers to how quickly the finance can be accessed and made available to the business.


  True
• A business should consider factors like cost and control when choosing a source of finance.

  True
• How does equity finance raise capital for a business?

  Selling shares to investors
• An overdraft provides quick access to funds but has high interest rates.


  True
• Specific business needs influence the choice of finance options.


  True
• Overdrafts are quickly available but have high interest rates.
• Match the source of finance with its availability and pros:

  Retained Profits ↔️ Highly available, no loss of control

  Loans ↔️ Moderately available, predictable payments

  Overdrafts ↔️ Quickly available, flexible access

  Equity Finance ↔️ Depends on investor interest, no repayment
• Retained profits can limit investment flexibility if insufficient cash is available.


  True
• Order the factors influencing a business's choice of finance

  1️⃣ Cost

  2️⃣ Control

  3️⃣ Timescale

  4️⃣ Security
• The overall cost of a finance option, including interest rates and fees, is referred to as its cost
• Match the source of finance with its description:

  Loans ↔️ Borrowed money requiring repayment with interest

  Equity Finance ↔️ Selling shares to raise capital

  Overdrafts ↔️ Short-term borrowing from a bank

  Retained Profits ↔️ Profits kept within the business
• What is a key advantage of loans as a source of finance?

  Reliable, predictable payments
• What type of finance might a business use for short-term cash flow problems?

  Overdraft
• Businesses must consider whether their financial needs are long-term or short-term when choosing a source of finance


  True
• When choosing a source of finance, businesses must consider whether their needs are long-term or short-term.


  True
• An overdraft is more suitable for covering short-term cash flow issues
• What is a major disadvantage of overdrafts as a source of finance?

  High interest rates
• Order the factors businesses must consider when evaluating sources of finance:

  1️⃣ Cost

  2️⃣ Control

  3️⃣ Timescale

  4️⃣ Security
• The overall cost of finance, including interest rates and fees, is referred to as its cost
• Match the source of finance with its description:

  Retained Profits ↔️ Profits kept within the business

  Loans ↔️ Money borrowed from lenders

  Overdrafts ↔️ Short-term bank borrowing
• What is the key reason to choose retained profits as a source of finance?

  Cost-effective, maintains full control
• Retained profits, loans, and equity finance are suitable for funding growth
• The level of control a business owner retains over the business when using finance is referred to as control
• Order the key factors that influence a business's choice of finance

  1️⃣ Cost

  2️⃣ Control

  3️⃣ Timescale

  4️⃣ Security
• What is the primary characteristic of a loan as a source of finance?

  Borrowed with interest
• Leasing involves renting equipment or assets rather than buying them outright
• Why might a business choose a loan to finance capital expenditures?

  Reliable and predictable payments