Michelle owns and runs a virtual PA business servicing small and medium sized businesses in Staffordshire helping them cope with their routine administration tasks. The business is structured as a sole trader.
Michelle needs a new printer costing £5 000.
Which one of the following would be the MOST appropriate source of finance for Michelle?
Select ONE answer
- Overdraft
- Leasing
- Debenture
- Trade credit
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 2
- Not correct – the photocopier will cost £5 000 and an overdraft is usually for small amounts of money or emergencies over a short period of time.
- Correct – Leasing allows a company to rent the use of a non-current asset, on payment of a regular fee. Michelle has the use of the printer immediately without having to find £5 000 but she will never own the asset, and because she knows what the regular payments will be, and she can be take the planned benefits of leasing agreements e.g. servicing/insurance/upgrades.
- Not correct – Michelle’s business is not a public limited company and therefore cannot issue debentures.
- Not correct – trade credit is not designed to purchase large items of capital equipment such as a £5 000 photocopier.
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