Do you think that a bank loan is the best source of finance for Adele to use to expand the business? Justify your answer.
Knowledge [1] Award 1 mark for identification of relevant issue(s) Application [1] Award 1 mark for a relevant reference to this business Analysis [2] Award up to 2 marks for relevant development of point(s)
Evaluation [2] Award up to 2 marks for a justified decision on whether a bank loan is the best source of finance for Adele to use
Relevant points might include: Loan
· Needs to be repaid [k]
· Have to pay interest [k] which will increase her costs [an]
· Have long time to repay [k] so has time to gain extra revenue to meet repayments [an]
· Can keep profits for future OR emergency [k]
· Has unlimited liability [k] as sole trader [app] so could lose personal assets if unable to repay [an]
· May need to offer security [k]
· Can borrow large amount or all the money [k]
Profits
· Using retained profits [k] but only has $5000 [app + an] so would still need $3000 [an]
· Using retained profits [k] as no need to repay [an]
· Using profit [k] could reduce the amount needed to borrow [an] which could reduce the amount of interest paid [an]
Additional options could include:
Take a partner [k] but must share profits [an] Borrow from family and friends [k]
Use personal savings OR sell her assets [k] Become a private limited company [k]