（a）Explain two advantages and two disadvantages to a business of using a bank loan as a source of finance． Advantage 1： . . . Advantage 2： . . . Disadvantage 1： . . . Disadvantage 2： . . .

Award 1 mark for each advantage/disadvantage (max 2 advantages/max 2 disadvantages).
Award a maximum of 1 additional mark for each explanation of the advantage/disadvantage.

There are no application marks for this question.
Relevant advantages might include:
- Usually quick to arrange - if already a customer of the bank, then will already be familiar with the business' bank records
- Can be for a varying length of time - the monthly repayment will be lower if a longer period of time is taken to repay the loan
- If interest rate is fixed when loan taken out, then this fixes the repayments / know repayments cannot be increased - expenses for loan repayments will not increase so easier to plan
- Paid back in instalments usually monthly - so can budget for the repayments in the cash flow forecast
- Keeps control of the business which will not be true if share capital is used instead to raise the finance required
- Lower interest rates may be offered to larger businesses - as lower risk of not repaying so repayments will be lower

Relevant disadvantages might include:
- Interest will be added to the repayments - increasing expenses for the business
- Security/collateral may be required - may lose personal assets if the loan is not repaid
- The loan needs to be repaid - which could negatively affect cash flow / liquidity
- If variable rate agreed, then interest rate may be increased during the repayment period - increasing expenses for the business

For example: The loan can be for varying length of time (1) so the monthly repayment will be lower if a longer period of time is taken to repay the loan and therefore easier to afford (1).