Choose the correct answer for each question.

1. Grant finance is often an excellent source of finance because it:

   1.   ?    Carries a low interest rate
   2.   ?    Does not usually have to be repaid
   3.   ?    Can be obtained without any formalities
   4.   ?    Is never monitored subsequently by the granting authority

2. Two of the following statements about a charge in respect of a bank loan are correct:

   1. A charge is a form of security for the lender
   2. A charge only applies to loans taken out by sole traders
   3. A charge means that the lender is entitled to take items of equivalent value to the loan in settlement of the debt
   4. A charge cannot be enforced legally
      
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3. Two of the following statements about borrowing are true:

   1. The greater the risk for the lender, the higher the interest rate tends to be
   2. If security for a loan is available this tends to reduce the level of interest rate charged
   3. If security for a loan is available this tends to increase the level of interest rate charged
   4. A secured loan is riskier for the lender than an unsecured loan.
      
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4. A business plan:

   1. Is a map of the area occupied by the business premises
   2. Has to be made available annually to the Inland Revenue
   3. Is useful for supporting applications for financing for business
   4. Is a budget for income and expenses for a year
      
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5. Two of the following statements are true:

   1. It is important for a sole trader to keep business cash and his/her personal cash separate so that accurate accounts can be kept
   2. For a sole trader (but not for partnerships or limited companies) the distinction between personal cash and business cash is really not important
   3. A sole trader needs to keep track of business cash receipts only in cases where the bank is monitoring the business plan
   4. Because a sole trader is subject to income tax on business earnings it is important to have a clear distinction between cash generated by the business and the sole trader's personal cash resources
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6. Profit is:

   1. the amount left over after all the expenses of business have been deducted from business income
   2. the amount left over after all business and personal expenses have been deducted from business income
   3. the total of a business's cash takings
   4. none of these
      
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7. Two of the following statements about business failure are correct:

   1. A business which supplies goods on credit may fail if a significant customer does not pay up
   2. A business set up without a business plan will always fail
   3. The majority of business start-ups do succeed
   4. Some businesses fail because of lack of working capital
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8. Geena starts up a manufacturing business producing rabbit hutches, borrowing £10 000 from the bank to get started. The business is not successful, and after three years Geena admits failure. The loan from the bank has been secured on Geena's flat which is currently worth £65 000, although it was worth only £45 000 when the loan was originally taken out. The existence of the security means that:

   1. If Geena cannot find £10 000 from any other source the flat must be sold now in order to repay the bank
   2. if Geena sells her flat at some point in the future she must remember to pay the bank £10 000 out of the proceeds of sale
   3. the bank will be entitled to a share of the profit which Geena makes when the flat is sold
   4. the bank cannot legally enforce the sale of Geena's flat
      
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9. Faruk is starting up a small business, and has heard that grants are available for business start-ups in his area which has high unemployment. The grants are available to anyone who employs at least two people on a full-time basis or the equivalent number of part-time staff. He writes to you, a small business adviser, asking for advice. His letter includes the four statementsbelow. Which one is correct?

   1. 'I'm worried about applying for a grant because I've heard that they always have to be repaid after two years'
   2. 'At least a grant would be cheaper than a bank loan because there's no interest to pay'
   3. 'Another advantage of a grant is that I wouldn't need to worry about writing a business plan - the bank manager told me that I'd definitely need one to support a bank loan application'
   4. 'I suppose I could actually spend the grant on anything I like - once I've got it I don't imagine anyone will check up on it'
      
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10. Mikhail's business has failed because of lack of working capital. This means that:

    1. he didn't work hard enough at running the business
    2. the business ran out of money to fund its day to day activities
    3. he was unable to raise enough funds to invest in new machinery
    4. he did not keep proper accounts
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