Lesson 6.1.1

6.1.1 Funding Types Quiz: NCFE Business & Enterprise, Unit 6

20 questions

Written by Revision Ninja · Last reviewed 11 October 2026

In partnership with Revision Ninja

This lesson compares the main ways a business can fund itself, from short-term options like overdrafts and trade credit to long-term choices such as loans, mortgages, leasing, shares, grants and crowdfunding. The key skill is matching the source to the need, the length of time and the amount of control the owners are willing to give up.

Key points

  • Short-term finance is repaid quickly and suits running costs such as wages, stock and bills; long-term finance suits assets that last for years.
  • An overdraft handles brief, repeated dips in the bank balance, and interest is charged only for the days the account is actually overdrawn.
  • Trade credit lets a business take goods now and pay the supplier 30 to 90 days later, without borrowing from a bank.
  • Debt factoring turns unpaid customer invoices into immediate cash, but the business loses part of each invoice as a fee.
  • A bank loan or mortgage is debt repaid in instalments with interest, whereas selling shares is equity, so there is no repayment but ownership is shared.
  • Retained profit and sales of unused assets are internal sources; money from banks, suppliers, investors or government is external.
  • Grants and crowdfunding avoid repayments, though grants are competitive and come with conditions on how they can be spent.

Key terms

Overdraft
Flexible short-term borrowing that lets a bank account go below zero up to an agreed limit.
Trade credit
Finance from a supplier who delivers goods now and accepts payment at a later agreed date.
Debt factoring
Selling unpaid invoices to a finance company in return for most of their value straight away.
Leasing
Paying regular fees to use an asset without ever owning it.
Share capital
Money raised from investors in return for part-ownership of a company, never repaid like a loan.
Retained profit
Profit kept inside the business rather than paid out, an internal source of finance with no interest.
Grant
Money awarded by a government body or charity for a purpose, which does not need to be repaid.
Crowdfunding
Raising small sums from many backers through an online platform, often before a product is made.

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The 20 questions

  1. What is the main purpose of short-term finance sources?

    • Fund long-term research
    • Cover everyday running costs
    • Buy factory buildings
    • Purchase rival firms

  2. A bakery delays paying a flour supplier for 30 days. What is this called?

    • Government grant
    • Venture capital
    • Trade credit
    • Bank loan

  3. Why might a business use debt factoring when waiting on unpaid invoices?

    • To raise cash immediately
    • To increase tax bills
    • To delay supplier payments
    • To lower credit scores

  4. Which finance source best covers regular short-term bank balance deficits?

    • Share issue
    • Venture capital
    • Bank overdraft
    • Mortgage loan

  5. What is the primary drawback of using a credit card for business purchases?

    • High interest on balances
    • Mandatory monthly bonuses
    • Zero transaction limits
    • Instant cash withdrawals

  6. Which asset is normally funded using a long-term source of finance?

    • Monthly raw materials
    • Weekly staff wages
    • Daily electricity bill
    • Second factory building

  7. What is a key advantage of a sole trader using personal savings?

    • Government backed
    • No interest
    • Tax free
    • Immediate profit

  8. How is a long-term bank loan typically repaid by a business?

    • Percentage share
    • Lump sum
    • Daily dividend
    • Regular instalments

  9. Why might a new gym lease running machines rather than buy them?

    • Low upfront cost
    • Higher quality
    • No maintenance
    • Free delivery

  10. Why is a government grant an attractive option for startup funding?

    • Guaranteed profit
    • Instant approval
    • Tax deductible
    • Not repaid

  11. Priya is a sole trader. She needs £20,000 to fit out a second shop and will repay it in fixed monthly instalments over five years. Which source of finance is she using?

    • Trade credit
    • Bank loan
    • Business grant
    • Bank overdraft

  12. Grafton Ltd needs £500,000 to buy a factory building. It wants to spread the cost over 20 years and keep the current owners in full control. Which source of finance fits best?

    • A commercial mortgage
    • Venture capital
    • A bank overdraft
    • Issuing new shares

  13. An online retailer is owed £40,000 by customers who pay 60 days after being invoiced, but it needs that cash now to pay wages. Which source of finance would release the money quickly?

    • Trade credit
    • Bank overdraft
    • Retained profit
    • Debt factoring

  14. A private limited company needs £1m to expand. It does not want interest charges or repayments, and is happy to bring in new part-owners. Which source of finance is it choosing?

    • A long-term bank loan
    • Hire purchase
    • A bank overdraft
    • Selling new shares

  15. A new gym pays a monthly fee to use £30,000 of running machines and hands them back after three years, never having owned them. Which source of finance is this?

    • Trade credit
    • Leasing
    • Hire purchase
    • Bank loan

  16. Which of these is an internal source of finance for an established business?

    • A government grant
    • A bank overdraft
    • Retained profit
    • Trade credit

  17. A freelance designer will be short of cash for two weeks until a client pays. Her bank lets her go up to £2,000 below zero, charging interest only on the amount she actually uses. What is this?

    • A bank loan
    • Debt factoring
    • Trade credit
    • An overdraft

  18. Why might a profitable business fund expansion using retained profit?

    • No interest
    • Tax exemption
    • Faster delivery
    • Government aid

  19. An entrepreneur raises £15,000 online from hundreds of members of the public, each pledging a small sum in return for an early version of the product. Which source of finance is this?

    • Venture capital
    • Crowdfunding
    • A bank overdraft
    • A business angel

  20. A community charity is awarded £10,000 by the local council to run a youth club. The money is not repaid and no ownership is given up. Which source of finance is this?

    • Grant funding
    • A bank loan
    • Share capital
    • Crowdfunding

All NCFE Business & Enterprise quizzes