Higher Business Management Finance Exam ,

Higher Business Management Finance Exam QuestionsAnd Answers Advantages of a ĺ Loan - ANSWER-- the business can budget for the repayments Higher Business Management of essential equipment can be made in advance and paid back over a number of years .Advantages of a Bank Overdraft - ANSWER-- usually easy for a business to arrange with its bank - it allows a business to continue to pay its expenses, despite there being no money in its bank account .Advantages of a Government Grant - ANSWER-- these are often offered as an incentive and a way of helping a business get started or expand - the money does not need to be repaid .Advantages of a Mortgage - ANSWER-- it can be paid back over a long period of time - the interest rate charged is often lower than the rate on the bank loan .Advantages of a Sale and Leaseback - ANSWER-- money can be raised from the sale of an asset to boost cash flow - the business passes over responsibility for maintaining and renewing equipment to the leasing company .Advantages of Debentures - ANSWER-- control of the business is retained - these can be paid back over a long period of time .Advantages of Debt Factoring - ANSWER-- responsibilities for collecting the debt is passed on to the factor, saving the company time and effort - cash flow is improved by receiving an advanced payment of the debts from the factor .Advantages of Hire Purchase - ANSWER-- expensive equipment can be bought which is only an initial deposit - the asset is owned by the business at the end of the repayment period .Advantages of Leasing - ANSWER-- the business does not need to spend large amounts of money to purchase the vehicles and equipment it needs - the leasing company us responsible for maintaining and renewing the equipment .Advantages of Trade Credit - ANSWER-- this allows a business to sell stock at a higher price ad earn a profit before the bill needs to be paid - it helps a business to keep going when the cash flow is poor .Advantages of Venture Capital - ANSWER-- large amounts of investments can be gained by establishment business - venture capitalists are willing to take on more risky investments than banks .Bank Loan - ANSWER-A bank agrees to lend money to a business for a specific purpose for a specific period of time. Regular payment installments are put into place. Medium Term .Bank Overdraft - ANSWER-A facility which allows a business to spend more money than is in its bank account. Short Term .Debentures - ANSWER-Loans borrowed from individuals through the stock market. Long term .Debt Factoring - ANSWER-A business sells its unpaid customer invoices to a factoring company then they collect and keep the customer debts. Short Term .Disadvantages of a Bank Loan - ANSWER-- interest has to be repaid along with the loan amount - small businesses may find it more difficult to secure a loan and often need to pay higher interest rates, as they are a greater risk .Disadvantages of a Bank Overdraft - ANSWER-- high interest rates are usually applied by the bank for borrowing money in this way - the overdraft can be withdrawn by the bank at any time and must then be repaid .Disadvantages of a Government Grant - ANSWER-- they can be complicated to apply for and can require the business to meet the certain requirements - grants are usually one-off payments that are not repeated .Disadvantages of a Mortgage - ANSWER-- interest has to be repaid along with the loan amount - the mortgage provider owns the property until the last repayment is made. This means the business could loose the property if they do not keep up the repayments .Disadvantages of a Sale and Leaseback - ANSWER-- leasing over a long period of time can be expensive ultimately, the business may pa back more than is received from the sale .Disadvantages of Debentures - ANSWER-- interest rate must be paid annually, even if a loss is made unlike with shares where dividends are only paid if profits are made .Disadvantages of Debt Factoring - ANSWER-- the business has to sell the customer debt for a reduced amount - factoring companies are usually only interested in large amounts of debt .Disadvantages of Hire Purchase - ANSWER-- the business does not own the asset until the last installment is paid - it can be an expensive form of borrowing if interest rates are high .Disadvantages of Leasing - ANSWER-- the business does not own the asset as they are renting it - rental costs can build up over a long period of time - however it may be cheaper in the long run for the business to buy the equipment .Disadvantages of Trade Credit - ANSWER-- suppliers will be reluctant to continue to offer credit if a business does not pay back in the agreed credit period - discount for prompt payment is lost .Disadvantages of Venture Capital - ANSWER-- Venture capitalists have an equity stake, which