Question 1: What is meant by 'internal sources of finance' in a business? Give two examples.

Answer: Internal sources of finance are funds generated from within the business itself. Examples include retained profits and selling unused assets.

Question 2: Identify three external sources of finance a new small business might use to start up its operations.

Answer: External sources of finance include bank loans, investors or shareholders, and government grants or subsidies.

Question 3: Explain the difference between a loan from a bank and selling shares in a company.

Answer: A bank loan is borrowed money that must be repaid with interest, and the lender does not gain ownership of the business. Selling shares involves giving part of the ownership to investors in exchange for money, and shareholders may receive dividends and have voting rights.

Question 4: List two advantages and two disadvantages of using bank overdraft as a source of finance.

Answer: Advantages: It provides quick access to cash and flexible repayment. Disadvantages: It can be expensive due to high interest rates and may lead to debt problems if overused.

Question 5: Describe a situation where a business might prefer to use venture capital as a source of finance.

Answer: A business might prefer venture capital when it is a high-growth startup that needs large sums of money and expertise from investors who are willing to take risks.

Question 6: Sketch a simple diagram showing the flow of funds when a business raises money through issuing shares. Label the key parts.

Answer: A correct sketch would show a business at the center, with arrows pointing outward to 'Investors' and 'Shareholders' giving money, and the business receiving funds. Additional labels include 'Shares issued' and 'Ownership transfer.'

Question 7: Explain why a business might choose to use crowdfunding as a source of finance. Mention one benefit and one risk.

Answer: A business might choose crowdfunding to access capital from many small investors and to build a customer base. A risk is that the campaign might not reach its funding target.

Question 8: A business has made a profit but does not want to take out a loan or sell shares. What internal source of finance could it use to fund expansion?

Answer: The business could use retained profits, which are profits kept in the company instead of being paid out as dividends.

Question 9: Draw a simple flowchart showing the steps a business takes to get a bank loan. Leave space for the drawing.

Answer: A correct flowchart would include steps: 'Apply for loan' → 'Bank assesses application' → 'Loan approved or rejected' → 'Funds received' and 'Repayment schedule.'

Question 10: Identify one advantage and one disadvantage of using government grants as a source of finance.

Answer: Advantage: Grants do not need to be repaid. Disadvantage: They are often limited and competitive to obtain.