Syllabus: SQA - Higher Course Spec Business Management
Module: Management of Finance
Lesson: Sources of Finance

Introduction

In the SQA Higher Business Management course, “Management of finance – Sources of finance” is part of the Management of Finance unit. It sits within the wider aim of helping students understand how businesses make financial decisions and manage their resources. This topic connects directly to real-world scenarios where organisations must choose how to fund growth, manage cash flow or survive tough periods — making it a key area for building financial literacy and critical thinking.

For educators, it’s also one of the more tangible areas to teach. Students can draw directly from their own experiences, such as applying for student loans or considering the risks of credit cards, to understand the choices businesses face.

Key Concepts

According to the SQA Higher Course Specification, students are expected to learn:

• Internal sources of finance:

  • Retained profits

  • Sale of assets

• External sources of finance:

  • Bank loans and overdrafts

  • Trade credit

  • Share capital (for limited companies)

  • Debentures

  • Government grants

  • Leasing and hire purchase

  • Crowd funding and venture capital

Students must be able to:

• Distinguish between short-term and long-term finance

• Justify the most appropriate source of finance for different business situations

• Evaluate the impact of these decisions on the business

This topic builds not just knowledge but decision-making skills, as students need to consider cost, risk, and suitability depending on the business structure (sole trader vs. PLC) and circumstances.

Real-World Relevance

Understanding sources of finance is fundamental for every organisation — from small start-ups to multinationals. Consider the recent increase in small businesses using crowd funding to launch new products, or large retailers taking on short-term loans to bridge seasonal cash flow gaps.

A good example is BrewDog, a Scottish brewery that famously used equity crowdfunding (“Equity for Punks”) to raise millions from loyal customers. On the other hand, many high street retailers turned to short-term bank overdrafts during the pandemic to stay afloat.

Bringing in these case studies helps students see the risks and rewards of different funding options, and understand that finance isn’t just theoretical — it directly shapes business strategy and survival.

How It’s Assessed

Assessment is through the external exam and the assignment. Key exam features:

• Command words: “Describe”, “Justify”, “Explain”, “Compare”, “Evaluate”

• Question types:

  • Short structured responses (e.g. Describe one internal source of finance)

  • Extended responses requiring evaluation (e.g. Justify the most appropriate source of finance for a start-up business)

  • Application to scenarios or case studies

Common student pitfalls include:

• Confusing internal and external finance

• Suggesting inappropriate finance for business types (e.g. issuing shares for a sole trader)

• Failing to evaluate — giving multiple options but no clear judgement

Use past paper questions to model strong evaluation. For instance, ask: “Why would a new business avoid a bank loan even if it’s available?”

Enterprise Skills Integration

This topic lends itself to enterprise thinking — especially in:

• Decision-making: weighing up cost, risk, control and long-term implications of financial choices

• Problem-solving: choosing finance options based on a business’s size, sector, and objectives

• Numeracy: calculating repayments, comparing options like leasing vs. buying

• Financial literacy: understanding consequences of debt, equity, and cash flow issues

Practical tasks could include students pitching a business idea and selecting finance methods — justifying their choices based on the business type and growth plans.

Careers Links

Teaching this topic helps build skills aligned with Gatsby Benchmark 4 (Linking curriculum learning to careers) and Benchmark 5 (Encounters with employers and employees).

It’s directly relevant to careers such as:

• Accountancy and finance (understanding funding decisions and financial risk)

• Business development (choosing and negotiating funding)

• Entrepreneurship (evaluating finance options for start-up or growth)

Encourage students to research how local businesses have funded their growth, or invite a local entrepreneur to speak about their experience securing finance.

Teaching Notes

Tips for delivery:

• Start with students’ personal finance experiences — e.g. “Would you borrow £10,000 to start a business? Why or why not?”

• Use real case studies to make the content relatable

• Use role play or debates (e.g. “Which is better for a start-up: crowdfunding or a loan?”)

• Build in numerical activities — comparing repayment costs or returns on investment

Common pitfalls:

• Students often memorise definitions but struggle with application — use scenario-based questions early

• Watch out for misconceptions (e.g. thinking grants need to be repaid)

Extension activities:

• Create a business plan with a financing strategy

• Analyse the financial structure of a real business using news reports or public accounts