Sources of finance — AQA GCSE Business
Test yourself on Sources of finance with AQA GCSE practice questions.
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Sources of finance explained
Appropriateness means judging how well a source of finance fits a business's need.
Read the full explanation
Consider amount required, time period, cost (interest, fees, dividends), impact on ownership and control, risk, cash-flow position and legal form. A sole trader needing £2,000 for stock might use an overdraft; a company raising £500,000 for a factory might issue shares. Short-term needs suit overdrafts or trade credit; long-term assets suit loans, leasing or share issue. Internal funds avoid debt but may be insufficient. The best choice balances cost, control, risk and availability, and is justified against the specific context.
Your focus
- Apply criteria to judge the suitability of a source of finance.
- Compare sources and explain trade-offs between cost, control and risk.
- Recommend a source with a justified conclusion for a given business situation.
Sources of finance exam tips
Marking Points
- Applies criteria such as amount, time, cost, control and risk to a named source.
- Matches a source to a specific business need, for example trade credit for stock purchased on normal credit terms.
- Explains a drawback of a source in context, such as interest increasing costs or share issue diluting control.
- Compares two sources and reaches a supported judgement about which is more appropriate.
- Considers the legal form or size of the business when judging suitability.
Examiner Tips
- 💡Use the data in the case to justify suitability, such as the amount, timescale or current cash position.
- 💡Give a balanced answer with at least one advantage and one drawback before judging.
- 💡Conclude with a clear recommendation and the main reason for it.
Common Mistakes
- Choosing a source without linking it to the amount or time period needed; correct by stating the sum and duration and matching the source.
- Ignoring the cost of finance; correct by explaining interest, fees or dividends and their effect on profit.
- Overlooking loss of control from share issue; correct by explaining that new shareholders may influence decisions.