Question 1: Name two common sources of finance that a new business might use to start trading.

Answer: Bank loan, personal savings, family or friends' contributions, government grants.

Question 2: Describe what a 'bank loan' is and how a business might use it.

Answer: A bank loan is money borrowed from a bank that must be paid back with interest over time. A business uses it to finance expansion, purchase equipment, or cover operating costs.

Question 3: Explain what is meant by 'owner's savings' as a source of finance. Give one advantage of this method.

Answer: Owner's savings refer to money the business owner invests from their own personal funds. An advantage is that it does not need to be repaid or incur interest.

Question 4: Identify a source of finance that involves raising money by selling part of the ownership in a business. Explain briefly how it works.

Answer: Share capital or issuing shares. The business sells shares to investors, who then become part-owners and may receive dividends.

Question 5: Describe what a government grant is and give an example of when a business might apply for one.

Answer: A government grant is money given by the government that does not need to be repaid. A business might apply for a grant to help fund research and development.

Question 6: Sketch a simple diagram showing the flow of funds from a business obtaining a loan to its use in purchasing equipment.

Answer: A flowchart showing: Business requests loan → Bank grants loan → Business uses money to buy equipment.

Question 7: Draw a simple diagram illustrating the process of a business issuing shares to raise finance.

Answer: A diagram with a business at the center, arrows pointing to investors, and labels indicating 'shares sold' and 'funds received.'

Question 8: Explain why a business might choose to use a loan rather than owner’s savings.

Answer: A business might choose a loan to access a larger amount of money than the owner’s savings, especially if the owner does not have enough savings or wants to keep personal funds separate.

Question 9: Identify one risk associated with using borrowed money as a source of finance.

Answer: The business must repay the loan with interest, which can be a financial burden if sales are low or profits are not enough.

Question 10: Suggest one advantage and one disadvantage of raising finance through selling shares.

Answer: Advantage: No need to repay the money; Disadvantage: Owners may lose some control over the business.