Name one common source of external financing for businesses.

Name one common source of external financing for businesses.

• A. Personal savings
• B. Bank loans
• C. Company revenue
• D. Equity from shareholders

Answer: (B)

Bank loans are a common source of external financing for businesses because they provide a way for companies to access funds that they do not have readily available. These loans allow businesses to invest in growth, manage cash flow, and cover operating expenses or capital expenditures. Banks typically assess the creditworthiness of the business and the purpose of the loan, approving amounts based on the company's potential to repay. This form of financing is crucial for businesses that need larger sums of money and prefer not to dilute ownership or use personal funds. In contrast, personal savings are internal financing options and not considered external. Company revenue also represents internal funds generated from operations. Equity from shareholders could be seen as external financing, but it specifically involves selling ownership stakes, which is different from the straightforward borrowing of bank loans.

Bank loans are a common source of external financing for businesses because they provide a way for companies to access funds that they do not have readily available. These loans allow businesses to invest in growth, manage cash flow, and cover operating expenses or capital expenditures. Banks typically assess the creditworthiness of the business and the purpose of the loan, approving amounts based on the company's potential to repay. This form of financing is crucial for businesses that need larger sums of money and prefer not to dilute ownership or use personal funds.

In contrast, personal savings are internal financing options and not considered external. Company revenue also represents internal funds generated from operations. Equity from shareholders could be seen as external financing, but it specifically involves selling ownership stakes, which is different from the straightforward borrowing of bank loans.