3.2.2—External sources of finance
- Syllabus
- First assessment 2024
- Objective
- 3.2.2
- Level
- SL
External finance expands options but adds obligations or influence
External finance comes from outside the business, including share capital, loans, overdrafts, trade credit, leasing, crowdfunding, micro-finance and business angels. Each source exchanges cash for a different obligation, cost or loss of control.
A long-term loan or share issue can fund land or machinery; an overdraft can cover a short working-capital gap; trade credit delays payment to suppliers. Leasing provides use without ownership, while an angel may bring expertise but also a stake and a voice in decisions.
A start-up choosing crowdfunding must persuade many small investors and deliver the promised product; a secured loan may be cheaper but puts assets at risk if repayments fail. Match the source to cash-flow capacity, risk, control and the size and duration of the need.
There is no universally best external source. Availability, interest rates, collateral, investor expectations and business scale change the decision; do not list advantages without linking them to the case.