Factors influencing the choice of finance:

• The cost of finance refers to the interest rate or return required by the finance provider
• What is required when security is a factor in choosing finance?

  Collateral or assets
• How does the size of a business influence its choice of finance?

  Affects availability and terms
• Why may small business owners be reluctant to issue shares?

  To avoid diluting control
• The length of time the finance is available for is called the timescale
• Profits kept within the business are called retained profits.
• What are the four key factors to consider when choosing a source of finance?

  Cost, control, timescale, security
• Why do larger businesses have more flexibility in choosing finance options?

  Financial stability and size
• Businesses with higher risk tolerance may prefer equity financing.
• What should businesses consider when choosing financing options to manage risk effectively?

  Risk tolerance
• Businesses choose financing options that best suit their risk tolerance, resources, and overall approach to managing risk.
• Small businesses often have limited access to share capital and corporate bonds.
• A strong financial position allows businesses to negotiate lower interest rates.


  True
• Key security types include property, equipment, inventory, and accounts receivable.
• Why is it important for businesses to choose the right source of finance?

  Long-term success and sustainability
• The timescale factor refers to the length of time the finance is available for
• Match the factor with its explanation:

  Cost ↔️ Interest rate or return

  Control ↔️ Level of ownership retained

  Timescale ↔️ Length of finance availability
• Larger businesses can negotiate lower interest rates due to their bargaining power.

  True
• The interest rate required by the finance provider is a key factor called cost
• Why is choosing the right source of finance crucial for a business?

  Impacts long-term success
• Share capital involves selling ownership stakes in the business.

  True
• Small businesses may face higher interest rates compared to large businesses.


  True
• What are the advantages of a strong financial position for a business?

  Wider range of options
• Match the risk tolerance with the preferred financing option:

  High ↔️ Equity financing

  Low ↔️ Loans
• Businesses must consider the level of control and ownership they retain when choosing finance.
• Match the source of finance with its description:

  Retained Profits ↔️ Profits kept within the business

  Loans ↔️ Borrowed money with interest

  Overdrafts ↔️ Short-term borrowing from a bank

  Leasing/Hire Purchase ↔️ Renting equipment rather than buying it

  Share Capital ↔️ Money raised by selling ownership stakes

  Grants ↔️ Financial assistance from organizations
• The current financial position of a business determines the availability, cost, and terms of finance.
• Security refers to collateral or assets provided to secure a loan or investment.
• What is the primary factor influencing the choice of finance when considering the time horizon?

  Whether financing is short-term or long-term
• Short-term financing usually has lower interest rates compared to long-term financing.

  False
• Steps to consider when choosing financing based on the time horizon.

  1️⃣ Assess whether financing is short-term or long-term

  2️⃣ Evaluate cost implications

  3️⃣ Analyze impact on control

  4️⃣ Determine security requirements
• Choosing the right source of finance is crucial for the long-term success of a business.


  True
• Overdrafts have variable interest rates.


  True
• Small businesses are more likely to provide collateral or assets as security.
• What is an advantage of a strong financial position when seeking finance?

  Lower interest rates
• A strong financial position allows a business to negotiate lower interest rates and better terms.


  True
• High-risk businesses often prefer equity financing despite greater uncertainty.


  True
• Security requirements influence the accessibility and cost of finance.


  True
• What reduces costs and improves financing terms for businesses?

  Strong current financial position
• Match the time horizon with its financing characteristics:

  Short-Term ↔️ Higher interest rates

  Long-Term ↔️ Lower interest rates