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Business Studies · May / June 2026 · Paper 21 · Question 1

0450

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  • 1(a)[8]

    Explain four characteristics of a successful entrepreneur. Award 1 mark for each characteristic of a successful entrepreneur (max 4). Award a maximum of 1 additional mark for each explanation. There are no application marks available for this question. Relevant characteristics might include:

    Self-confident – strong belief in their own ability and ideas
    Creative – find new and different ways to attract customers
    Independent – will need to be able to work without help/ideas/input from others
    Hard worker/dedicated – be prepared to work long hours
    Risk-taker – willing to risk losing own capital as a sole trader or partnership / willing to risk losing personal assets / accepts possibility of failure
    Effective communicator – able to persuade others
    Optimistic – think positively about new ventures and continues if there are setbacks
    Innovative – able to develop new products to retain customers
    Self-motivated/ambitious/passionate – determined to overcome difficulties
    Resilience/perseverance – does not give up if problems occur Notes:
    This question is about an entrepreneur not a sole trader or manager.
    Some explanations can be used for more than one point but only award once, for example coming up with unique products could be used for creative or innovative.
    The following are too vague;

    team player, good leader. organiser, collaborator, good decision maker, open minded, For example: Self-confident (1)

    as the entrepreneur has a strong belief in their own ability and ideas to convince others such as banks to lend to them (1).

  • 1(b)[12]

    Consider the advantages and disadvantages of the following three sources of finance Ashanti could use for the new equipment. Which source should she use? Justify your answer.

    owners’ savings
    bank loan
    leasing Level Description Sound application of knowledge and understanding of relevant business concepts using appropriate terminology. Detailed discussion of two or more sources. Well-justified recommendation. Candidates discussing all three sources in detail, in context and with a well-justified recommendation, including why the alternative sources 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 source. Judgement with some justification / some evaluation of choice made. Candidates discussing two of more sources 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 sources with little/no explanation. Simple judgement with limited justification / limited evaluation of choice made. Candidates outlining all three sources in context should be rewarded with the top marks in the band. 1–4 No creditable response. Notes:
    This question is looking at finance for a new piece of equipment so related to sales/retail and not a factory/production/ producing.
    Do not award mirror arguments (the advantage of using one method of finance may be a disadvantage of another, but this should only be credited once). Relevant points might include: Advantages Disadvantages Owners’ savings
    Does not have to be repaid
    No interest paid on it – making it a cheaper source of finance than possibly 5% interest on bank loans
    No security needed which would be required with a bank loan – Ashanti does not have to risk any personal assets as security for the loan due to being a sole trader
    Is available straight away if Ashanti has sufficient funds
    It may use all $20 000 from Ashanti’s savings – then there will be no reserves left for any emergencies in the future
    Possible loss of 2% to 5% interest – as money not left in a savings account (opportunity cost) Bank loan
    Usually quite quick to arrange compared to some other sources
    Can be repaid over various periods of time – so if over a longer period then the repayments will be lower each month – more manageable to repay
    Can be paid back in monthly instalments as the clothes shop gets established
    It must be repaid with interest – increases costs/expenses – may reduce profit in the short-term
    As YC is a start-up business then the interest rate on the loan may be quite high relative to the interest rate for a larger business – it may be harder to be competitive with other clothes shop businesses
    As a sole trader Ashanti will have her personal assets at risk if she does not repay the loan Advantages Disadvantages Bank loan Ashanti is more likely to get the full amount required when she applies for the loan – as she has already prepared a business plan
    Security is often required
    YC has not yet started so there will not be any financial statements available to take to the bank to support a loan application
    As interest rates are increasing from 2% to 5% the interest charged on the loan may increase if the terms allow for this Leasing
    Allows YC to use the shop equipment without a large sum of capital required to purchase it
    Payments are made each month so these spread out the payments instead of one large sum at the start – which can help the management of its cash flow
    Maintenance of the shop equipment will be paid for by the lease company – lowers costs
    May be able to purchase the equipment at the end of the lease – so will become a non-current asset of the business
    Can replace the equipment more regularly when new models are brought out
    Will be more expensive than buying the equipment outright as total costs are likely to be higher
    YC does not own the equipment, so it is not an asset of the clothing business
    May have to return the equipment at the end of the lease and will have to start again to replace it Recommendation Justification might include:
    Owners’ savings should be used because it has the lowest cost of the three sources which is important as YC will be incurring other expenditure when the clothes shop is first opened. Ashanti will not want additional costs from interest payments on bank loans if it can be avoided and leasing will not be beneficial as it will still mean regular cash outflows will have to be made.
    A bank loan will be the best choice because Ashanti needs to spread out the repayments for equipment for the new shop. As a sole trader Ashanti is likely to use her personal assets as security so the bank will be more willing to provide the loan.
    Leasing will be the best because no capital is required, and YC is only just starting up so is unlikely to have the security required to be able to get a bank loan. As Ashanti is unlikely to have the capital to purchase the equipment as well as cover all the other costs of starting up, leasing will allow her to use the equipment and just make monthly payments which she is likely to afford with revenue from selling clothes.
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