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Business Studies · May / June 2025 · Paper 21 · Question 3

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  • 3(a)[8]

    Explain two advantages and two disadvantages to a business of using a bank loan as a source of finance. 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).

  • 3(b)[12]

    Consider the advantages and disadvantages of the following three methods of promotion PF could use for its new product range. Which is likely to be the best method for PF to use to increase sales? Justify your answer.

    Leaflets handed out in the street
    Billboards on the side of a main road
    Discounts on first purchase Level Description Sound application of knowledge and understanding of relevant business concepts using appropriate terminology. Detailed discussion of at least two methods of promotion. Well-justified conclusion. Candidates discussing all three methods of promotion in detail, in context and with a well-justified conclusion, including why the alternative methods of promotion were rejected, should be rewarded with the top marks in the band. 9–12 Sound application of knowledge and understanding of relevant business concepts using appropriate terminology. Detailed discussion of at least one method of promotion. Judgement with some justification/some evaluation of choice made. Candidates discussing two or more methods of promotion in detail and applying them to the case should be rewarded with the top marks in the band. 5–8 Limited application of knowledge and understanding of relevant business concepts. Limited ability to discuss the methods of promotion with little/no explanation. Simple judgement with limited justification/limited evaluation of choice made. Candidates outlining the three methods of promotion in context should be rewarded with the top marks in the band. 1–4 No creditable response Relevant points might include: Advantages Disadvantages Leaflets handed out in the street
    A cheap method of advertising shoes – keeps marketing budget costs lower
    Can be given out to a wide range of people – may attract potential customers who may not otherwise see the advertisement
    Can be kept for future reference – so are more likely to remember the details of the rubber shoes – and may therefore be more likely to make a purchase in the future
    May not be read – and just thrown away in the street – wasted cost of producing the leaflets
    May be seen as junk and can be annoying for potential customer of shoes – so ignore it and not make a purchase
    May lead to litter and cause pollution in the streets leading to a bad reputation for PF Billboards on the side of a main road
    A permanent form of advertising for a period of time – more likely to be seen more than once and therefore attract the attention of passers by
    They can potentially be seen by a large number of people – walking or driving past the billboard – may attract the attention of many potential customers
    Can easily be missed – especially if the person is driving by and concentrating on the road/traffic
    No detailed information about the sustainable sources of raw materials can be included in the billboard – as only large writing can be seen, and so only brief general message can be on the billboard
    Possibly higher cost of advertising compared to the other two for the shoe manufacturer Advantages Disadvantages Discounts on first purchase
    Discounts make the shoes more affordable – which can encourage potential customers to make the first purchase – may be tempted to buy when otherwise wouldn’t – increasing sales
    Lower price may make them more competitive – increasing sales of the new product in this competitive market
    Business receives a lower price than otherwise would – lower profit margin
    Unless the discount is quite high then may not be sufficient to encourage potential customers to purchase new shoes Conclusion Justification could include:
    Leaflets handed out in the street will be the most effective because they can be kept by potential customers and reminded of the shoes so a purchase can be made later. The name of the product and where it can be purchased will not be forgotten so sales are likely to increase. Billboards will be less effective as they can easily be missed as people go past them and a discount will only be effective if it is a large discount, which will significantly reduce PF’s profit margin.
    Billboards on the side of the road will be the most effective way to increase sales because it will be seen every day by a large number of people passing by and if the billboard is attractive, it will draw the attention of many potential customers leading to higher sales of shoes.
    Discounts on the first purchase will be the most effective way to increase sales because it will lower the price of the rubber shoes making them more affordable and encourage the customer to make the purchase. If they like the sustainability of the raw materials used, then they will come back and be a regular customer of the business.
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