external method of finance 2.1.2

Question 1

definition of bank loan and overdraft

Answer 1

borrowing from the bank by a loan or overdraft could be short term to long term. the bank will charge interest on the loan .the bank will demand collateral to provide security of loan not paid.
overdraft is short term this allows business account to go into minus by a negotiated time .the interest charge on overdraft are often higher than on loan

Question 2

advantage of business loans and overdraft

Answer 2

overdraft-
easy to arrange, flexible, interest is only on amount borrowed, no secured on asserts of a business
loans-
more likely to get funded, lower interest than overdraft, appropriate way to financing fixed asserts

Question 3

disadvantage of business loans and overdraft

Answer 3

overdraft-
can be withdrawn at short notice, interest charge varies with interest rates, higher interest rates than bank loan
bank loan,
required collaterals, interest paid on full amount outstanding, harder to arrange

Question 4

definition of share capital

Answer 4

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Question 5

advantage of share capital

Answer 5

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