Syllabus: Pearson Edexcel AS Business
Module: Raising Finance
Lesson: 2.1.2 External Finance

Introduction

This article supports the Pearson Edexcel AS Business specification, specifically Theme 2: Managing business activities. Topic 2.1.2, “External finance”, is a key part of the “Raising finance” section, where students explore the funding options available to businesses beyond their internal sources.

This topic is vital for helping students understand how businesses scale, manage cash flow gaps, and make investment decisions. It’s also rich with real-world connections, helping students appreciate the practical, often high-stakes nature of business growth and survival. For teachers, SLT, and careers leads, this topic is an ideal point to integrate enterprise skills, financial literacy, and strategic decision-making.

Key Concepts

According to the Pearson Edexcel AS Business syllabus, students need to understand the following aspects of external finance:

• Sources of external finance: including family and friends, banks, peer-to-peer funding, business angels, crowd funding, other businesses, loans, share capital, and venture capital.

• Methods of finance: such as loans, share capital, overdrafts, trade credit, leasing, grants.

• The implications of external finance: understanding short-term vs long-term finance, cost implications (interest rates, loss of ownership), and accessibility depending on business size or stage.

• Suitability of finance options: matched against the needs of start-ups vs established businesses, or for specific objectives like equipment purchase vs working capital.

Students are expected to weigh up the pros and cons of each method and apply them to different business contexts, both in familiar and unfamiliar scenarios.

Real-World Relevance

External finance is a day-to-day reality for most businesses – from small tech start-ups raising seed capital through crowdfunding, to multinational firms issuing bonds to fund expansion. Recent real-world cases include:

• Monzo Bank using crowd funding and venture capital to scale quickly in the fintech space.

• Gymshark, which began with personal savings and moved to equity investment from General Atlantic as it scaled internationally.

• Local businesses applying for Recovery Loan Scheme support post-Covid to bridge cash flow shortages.

Introducing these examples helps students connect the theory with real decisions made by businesses under pressure or in pursuit of growth.

How It’s Assessed

Assessment under Pearson Edexcel typically includes:

• Data response questions: often present a short scenario requiring students to analyse why a business might choose one source of finance over another.

• Short-answer questions: definitions or short explanations of terms like “venture capital” or “trade credit”.

• 10 and 12 mark questions: ask students to evaluate finance options in context, often using command words like “analyse”, “assess”, or “evaluate”.

Students are expected to:

• Apply knowledge accurately.

• Make context-specific judgements (not just generic pros and cons).

• Use numerical data where available (e.g. cost of interest, time frame).

Command of evaluation is key. A well-supported conclusion based on the context is often the difference between Level 2 and Level 3 responses.

Enterprise Skills Integration

This topic is rich with natural integration points for enterprise education:

• Problem-solving: choosing the best funding option for a scenario with risk and uncertainty.

• Decision-making: justifying choices based on stakeholder needs and strategic goals.

• Financial literacy: understanding interest rates, ownership dilution, and credit terms.

• Communication: pitching a finance strategy to different stakeholders (investors, banks, internal teams).

Tools like Pitch Deck Analyser can help students simulate presenting their business to investors, while MarketScope AI can be used to test business models’ attractiveness to external finance providers.

Careers Links

This topic ties in directly with Gatsby Benchmark 4 (Linking curriculum learning to careers) and Benchmark 5 (Encounters with employers and employees). Roles that directly involve knowledge of external finance include:

• Business finance analyst

• Investment banker

• Commercial lending officer

• Start-up founder

• Venture capital associate

It’s also relevant for pathways into entrepreneurship, financial services apprenticeships, and business management degrees. Bringing in alumni or local entrepreneurs to talk about how they financed their ventures adds powerful context.

Teaching Notes

• Common pitfalls: Students often list sources of finance without matching them to the business context. Reinforce that a sole trader and a limited company have different options and constraints.

• Stretch activities: Ask students to research a real start-up’s funding journey or simulate a pitch to investors.

• Interleaving: Link back to 1.3 (Market positioning) and 2.1.1 (Internal finance) to reinforce business lifecycle understanding.

• Curriculum overlap: This topic has strong crossover with economics (government grants, interest rates) and maths (percentages, cost calculations).

• Careers integration: Invite your careers lead to co-teach a lesson around funding routes for young entrepreneurs, especially those from underrepresented backgrounds.