BTEC Business: Sources of Finance

This material trains one of the areas of BTEC Level 3 National Business Unit 3, Personal and Business Finance: selecting and evaluating sources of business finance (content area D1 of the Pearson specification). Unit 3 is a mandatory unit assessed by a written examination set by Pearson in the Extended Certificate, Foundation Diploma, Diploma and Extended Diploma, and questions on business finance make up roughly two thirds of that paper.

The material starts with the split the specification uses. Internal sources come from inside the business: retained profit, net current assets and the sale of assets. External sources come from outsiders: owner's capital, loans, mortgages, crowdfunding, venture capital, debt factoring, hire purchase, leasing, trade credit, grants, donations, peer-to-peer lending and invoice discounting. For each, you practise whether it is short term or long term, what it costs and what the business gives up in return, whether that is interest, a fee, security or a share of ownership and control.

Most questions are set in short scenarios about invented UK businesses: a sole trader who needs a van, a design agency whose laptops go out of date, a wholesaler waiting for customers to pay, a garden centre buying seasonal stock, a start-up offered money for a share of the company, a partnership testing demand through crowdfunding. You decide which source fits the need and why the others fit less well. Short calculations show what finance really costs: the extra paid under hire purchase, the advance and fee in debt factoring, retained profit after dividends and the value a venture capital offer places on a company.

The formats work together. The quiz has twelve questions, each with an explanation of why the key is right and the distractors are not. The flashcards hold the definitions and the matching principle (short-term needs with short-term finance, long-term assets with long-term finance). The written work has eight longer tasks marked against key points, from explaining the difference between factoring and invoice discounting to assessing venture capital against a bank loan and recommending finance for a sole trader's second shop, which is the kind of reasoning the longer assess and evaluate questions reward. The exam is a conversation with an examiner who sets finance problems for a described business, asks you to justify a choice and then gives brief feedback at the end.

The scenarios and questions are original practice material; they are not taken from Pearson papers and do not predict what a particular examination will ask.

• Classify sources of finance as internal or external and as short term or long term
• Explain how debt factoring, invoice discounting, hire purchase and leasing work and when each suits a business
• Calculate the cost of hire purchase and debt factoring and the retained profit left after dividends
• Explain what a business gives up in return for venture capital, crowdfunding, loans and grants
• Recommend and justify a source of finance for a described sole trader, partnership, company or charity

Practice material written by Zestly, based on Pearson BTEC Level 3 National Business (2016 suite), Unit 3 Personal and Business Finance, content area D1 Sources of finance (specification Issue 15, April 2023).