Internal Sources Of Finance Are Inside The Business

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Internal sources of finance are inside the business and are made from the company itself by the services they provide, such as selling stock or keeping back a profit. External sources of finance are from outside of the business from elsewhere, such as an owner who invests money into the business, loans from a bank or people you know, debentures which are loans made to the company, a mortgage, hire purchase, leasing or grants. However these are long term external sources, some short term ones could include an overdraft facility, trade credits or factoring. Internal sources of finance Retained profit The percentage of the earnings made and kept by the company which can be used to pay any debts or be reinvested in the business, however it’s…show more content…
Also in small business organisations profits and losses are passed through their shareholders and then they can create negative retained earnings as well. All of these problems could eventually lead a business into bankruptcy. Another drawback is the fact that the money could have been invested elsewhere therefore earning a higher profit. Savings The money a company had before or have made from the business and has been kept as a resource. This is related to because they would keep savings in the case of an emergency arising meaning that if something unexpected occurred they wouldn’t be worrying on how to solve it, they could just take money out of their savings to resolve the dilemma. Advantages – This is a beneficial idea for a business because there will be interest rates added to your savings and because there are competitive interest rates between banks there could be an offer for a savings with bonus interest, which will ultimately increase the amount of money will have as a resource within the organisation. Disadvantages – However the disadvantages of having savings is that the money is often tied up for a long period of time meaning that it can’t be accessed without large consequences and if your account doesn’t have a fixed rate the interest can reduce over time and it could
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