ACCA Financial Management (F9) Certification Practice Exam

What type of aid might governments provide for SMEs?

1. Equity financing

2. High-interest loans

3. Grants and subsidies

4. Tax penalties

The correct answer is: Grants and subsidies

Governments often provide grants and subsidies to support Small and Medium-sized Enterprises (SMEs) as a way to foster economic growth, innovation, and job creation. Grants and subsidies offer financial assistance without the requirement for repayment, which is particularly beneficial for SMEs that may struggle to secure traditional financing. This form of aid can cover various expenses, such as equipment purchases, research and development, training, and operational costs, allowing SMEs to expand their operations without the constraints of high-interest debt or equity dilution. In contrast, the other options do not typically align with the supportive intentions of government aid programs. Equity financing involves selling a stake in the company, which may not be desirable for SMEs looking to maintain control. High-interest loans can burden SMEs with significant repayment obligations, making them less favorable as a form of government assistance. Tax penalties represent a punitive measure rather than a supportive mechanism, discouraging rather than encouraging business development. Thus, grants and subsidies are widely recognized as the most suitable form of government assistance for SMEs.