Jonny runs a very small wholesale nut business called Jonny’s Nuts. He has decided to apply for a £20,000 bank overdraft to help manage his working capital during the busy Christmas trading period.
What would be ONE benefit for Jonathan of using an overdraft?
Select ONE answer:
- The bank CANNOT demand immediate repayment
- It is a LONG TERM source of contingency finance
- Interest if ONLY paid on the amount owed
- It is SUITABLE for purchasing expensive equipment
Show the workings to arrive at your answer, and explain and justify your reasons:
……………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………
This multiple-choice question is suitable for Business Studies KS4 & KS5 classes
The answer is 3
- Not correct
- Not correct
- Correct – Definition of overdraft e.g. a credit facility which is agreed with a bank and money can be withdrawn from an account up to an agreed amount. If Jonny does not need to use all of the £20 000 he only pays interest on the amount used. This reduces Jonny’s finance costs compared to other sources of finance such as a bank loan.
- Not correct
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