Methods of External Finance: Loans

What is the general definition of a loan?

A sum borrowed and repaid with interest over a set period.

What is the typical duration for repaying a bank loan?

Repaid over a period of 2 to 10 years.

What is a mortgage in the context of business finance?

A long‑term secured loan used to purchase fixed assets.

How do debenture holders differ from shareholders?

Debenture holders are creditors, not owners.

What is a key characteristic of debenture agreements?

They are long‑term with fixed‑interest rates.

How do loans help founders maintain business control?

Loans do not dilute ownership or voting rights.

Which factor heavily influences the interest rate of a loan?

The credit rating of the borrower.

What is the main risk of failing to pay a mortgage?

The risk of repossession of the fixed asset.

How are bank loans typically classified regarding security?

They are generally unsecured loans.

What is a financial benefit of fixed interest rates?

Cost predictability for future repayments.