Entrepreneurship and Small Business (ESB) V2 Certification Practice Exam

Which type of financing requires repayment and typically has a tenure of 10 years?

1. Grants

2. Angel investors

3. Loans

4. Crowdfunding

The correct answer is: Loans

The correct choice is loans, as they are a form of financing that requires repayment over a designated period, which is typically defined in the loan agreement. Loans are often structured with a specific tenure and can range from short-term to long-term durations, with 10 years being a common term for various types of loans used by businesses. When a business takes out a loan, it borrows a certain amount of money from a lender with the promise to pay it back, often with interest, over the agreed timeframe. This characteristic of being time-bound with a clear repayment plan is what distinguishes loans from other forms of financing. Grants, on the other hand, are funds provided with no expectation of repayment, typically awarded for specific projects or purposes and often from government or nonprofit entities. Angel investors invest their personal funds in exchange for equity stakes in a company, and while they may expect a return on their investment, repayment is not characteristic of their involvement. Crowdfunding involves raising small amounts of money from a large number of people, typically via online platforms, and can vary in terms of repayment obligations depending on the model used; however, it does not generally involve a structured repayment plan like traditional loans do.