Question 1: Define 'internal finance' and give one example of how a business might use it.

Answer: Internal finance refers to funds generated within the business itself. An example is using retained profits to finance expansion.

Question 2: List two advantages of using bank overdrafts as a source of finance.

Answer: Advantages include flexibility in borrowing and quick access to funds.

Question 3: Explain why a small start-up business might prefer to seek funding through a bank loan rather than issuing shares.

Answer: A start-up may prefer a bank loan because it retains ownership and control, and may find it easier to secure than issuing shares to external investors.

Question 4: Identify and describe one disadvantage of using trade credit as a source of finance.

Answer: A disadvantage is that it can strain relationships with suppliers if payments are delayed, and may lead to penalties.

Question 5: Draw a simple diagram to illustrate how a business might receive funding from a peer-to-peer lending platform. Label the key components.

Answer: A correct sketch would show a business seeking funds, a peer-to-peer lending platform acting as an intermediary, and individual lenders providing money. Labels should include 'Business', 'Lenders', and 'Platform'.

Question 6: Give two reasons why a large corporation might issue shares to raise finance.

Answer: Reasons include raising large sums of money without increasing debt, and sharing ownership with investors who might also provide strategic support.

Question 7: Explain what is meant by 'crowdfunding' and how it can benefit a new business.

Answer: Crowdfunding involves raising small amounts of money from many people via online platforms. It benefits a new business by providing funding and marketing exposure.

Question 8: Sketch a flowchart showing the process of obtaining a government grant for a business project. Include at least three steps.

Answer: A correct sketch would show: 1. Business applies for the grant, 2. Application is reviewed by the government, 3. If successful, funds are awarded and received by the business. Labels should clearly identify each step.

Question 9: Describe a situation where a business might choose to use venture capital as a source of finance.

Answer: A business might seek venture capital if it is a high-growth startup needing substantial funding in exchange for equity, especially if traditional loans are not suitable.

Question 10: Identify one potential risk for a business that relies heavily on short-term sources of finance like overdrafts or trade credit.

Answer: The business might face cash flow problems if short-term funding is withdrawn or unavailable when needed.