Describe sources of internal and external finance for a business

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There are many sources of finance that a business needs to be able to employ their business successfully. There are internal and external sources of finance. 1)  Internal sources of finance are funds found inside the business. Internal sources of finance include:

Own personal savings

The owner would have saved lots of money over a period of time, and they can therefore use this money towards the business. Using personal savings is good because no repayments need to be made and they do not need to worry about paying any interest. However, if you use all your personal savings, it will mean there will be no more funds to go towards emergencies.

Capital from profits

Capital from profits is the retained profits from their business, after paying expenses and tax. They can use this money to go towards the business and like personal funds, they do not need to pay back this money or pay any interest back. Nevertheless, once all the money is gone, they will not have any money to use in the event of an emergency.

Sell assets

The business could sell unused assets to gain cash. These assets could include machinery or equipment in which the business does not use.  This is good for them to do as it is good business practice and they are making use of something they don’t need. In addition, they could rent out part of their property they no longer need which will allow them to gain money.

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Furthermore, there are external sources of finance. 2)  External sources of finance are found outside the business. External sources of finance include:

The bank

The owner of the business could obtain a loan. A loan is when you borrow money from the bank; this money can then go towards the business. However, you will need to pay back the loan and this will come with high levels of interest. There are different types of loans, secure and unsecure. A secure loan is when the loan goes against the owner’s assets. For example, the loan could go against their ...

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