| Criteria | Marks |
|---|
| Provides why and/or how equity finance is an disadvantage | 3 |
| Provides characteristics and features of ONE disadvantage of equity financing | 2 |
| Recognises ONE disadvantage of equity financing | 1 |
Sample answer:
A disadvantage associated with using equity financing is that a business uses owner’s equity or retained profits to finance its key business functions. Due to this they are unable to claim a tax deduction as no funds are borrowed. As retained profits are re-invested into the business, the investor is unable to invest in other opportunities, which may provide better returns.