5.2 Sources of Finance

Cambridge International AS Level Business — 9609

2026 📋 Syllabus Objectives

By the end of this topic, you should be able to:

  1. Explain the relationship between the type of business ownership and the sources of finance available to it
  2. Identify and evaluate internal sources of finance: owner's investment, retained earnings, sale of unwanted assets, sale and leaseback of non-current assets, and working capital
  3. Identify and evaluate external sources of finance: share capital, debentures, new partners, venture capital, bank overdrafts, leasing, hire purchase, bank loans, mortgages, debt factoring, trade credit, micro-finance, crowdfunding, and government grants
  4. Explain the factors that influence the choice of finance in a given situation: cost, flexibility, need to retain control, purpose of the finance, and level of existing debt
  5. Judge which source of finance is most appropriate in a specific situation

📌 Introduction: What is Finance?

https://cambridgeassistant.com

Every business needs money to operate — to buy equipment, pay wages, buy stock, or expand. The money a business uses to fund its activities is called finance.

There are two broad categories:

  • Internal sources — money that comes from within the business itself
  • External sources — money that comes from outside the business

🔑 Objective 1: Business Ownership and Sources of Finance

https://cambridgeassistant.com

The type of business (its legal structure) affects which sources of finance it can use. Not every source is available to every business.

Business TypeWhat This MeansSources Available
Sole traderOne person owns and runs the businessOwner's investment, bank loan, overdraft, trade credit, micro-finance
PartnershipTwo or more people own the business togetherOwner's investment, new partners, bank loan, trade credit
Private Limited Company (Ltd)A company owned by shareholders — shares cannot be sold to the publicRetained earnings, share capital (to friends/family), bank loans, debentures, venture capital
Public Limited Company (PLC)A company whose shares are traded on a stock exchange, open to the publicAll of the above PLUS issuing shares to the general public

Key idea: The bigger and more formal the business, the more finance options it has. A sole trader cannot issue shares to the public. Only a PLC can do this. A partnership can bring in new partners to raise money, but a sole trader cannot.

Sign in to view full notes