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Explain one disadvantage to a small business of using an overdraft as a source of business finance - Edexcel - GCSE Business - Question 5 - 2022 - Paper 1
Question 5
Explain one disadvantage to a small business of using an overdraft as a source of business finance. Explain one impact on a small business of an increase in unempl... show full transcript
Worked Solution & Example Answer:Explain one disadvantage to a small business of using an overdraft as a source of business finance - Edexcel - GCSE Business - Question 5 - 2022 - Paper 1
Step 1
Explain one disadvantage to a small business of using an overdraft as a source of business finance.
Answer
Using an overdraft as a source of business finance can be risky for a small business. One key disadvantage is the potential for high interest rates. When a business exceeds its bank account balance, it is charged interest on the overdrawn amount, which can accumulate quickly. For a small business with limited cash flow, these costs can become significant, leading to financial strain and possibly affecting the overall viability of the business.
Step 2
Explain one impact on a small business of an increase in unemployment.
Answer
An increase in unemployment can significantly impact a small business by reducing consumer spending. When unemployment rises, people tend to have less disposable income and may cut back on non-essential purchases. This decrease in demand can lead small businesses to experience lower sales and revenue, forcing them to make tough decisions such as reducing staff or cutting operational costs.