What should an entrepreneur consider most carefully before taking a loan?
Answer and explanation
Correct answer: Repayment capacity and a clear purpose for using the funds
Borrowed funds create a financial obligation because the principal and applicable interest must be repaid on time. Before borrowing, the entrepreneur should identify how the money will be used and assess whether expected cash flows will support repayment without harming daily operations. A large loan is not automatically useful, secrecy prevents sound advice, and unplanned spending increases risk. Hence, option A is the responsible choice.
Frequently asked questions
What is the correct answer to this question?
Repayment capacity and a clear purpose for using the funds
Why is this the correct answer?
Borrowed funds create a financial obligation because the principal and applicable interest must be repaid on time. Before borrowing, the entrepreneur should identify how the money will be used and assess whether expected cash flows will support repayment without harming daily operations. A large loan is not automatically useful, secrecy prevents sound advice, and unplanned spending increases risk. Hence, option A is the responsible choice.
Which subject and chapter does this question cover?
This is a Class 11 Business Studies question. Chapter: Sources of Business Finance. Topic: Borrowed Funds.
