Business is a commercial activity of production and distribution of goods and services.  Every business functions smoothly with strong financial support. Finance is a lifeline for any business to keep flourishing. The funds supporting business generally come from its proprietors which sometimes are not sufficient. And to fulfill the necessities the proprietors depend on external sources for funding.

This informative blog posted by BookMyEssay holds most of the informative sections to understand the basics, differences, and similarities within external and internal finance sources. There are many blogs and articles posted by the author on the same subject and can be found under the finance assignment help section.

Internal Sources of Finance

Internal sources of finance can be defined as using own money to run a business. The proprietors use their own money to fund resources and hold full authority on their assets and profits and losses.

External Sources of Finance

The external sources of finance are the raising of funds from the outside of the firm. These funds are obtained from investors or bank loans, etc.

How These Are Different as well as Similar

Both internal and external sources of finance serve the same purpose of funding a business for its flourish but there is some difference between the two sources.

Internal sources of finance raise funds from their personal money. The owners use their own funds o to run a business and have full authority over their fixed assets and profits and losses. Whereas, the external sources of finance the funds are arranged from the outside of the firms which includes investors, loaning, etc.

Internal sources of finance are economical but the External sources of finance are expensive. Internal sources of finance do not require collateral for raising funds but External sources, sometimes, assets are mortgaged as security to raise funds. Internal source of finance uses the sources like sales of stocks, fixed assets, retained profits, and debt collection. In contrast, External source of finance includes financial institutions, bank loans, preference share, debenture public deposits, commercial papers, trade credits, etc.  Internal source of finance helps with the limited amount of funds which can be used limitedly. But, External source of finance helps to arrange the huge amounts of funds which can be used wisely and can help to the business expansion.

The internal and external sources of finance are some of the few factors which help to raise money for smooth functioning and expansion of business. The owner needs to make wise choices for the finance sources by considering the time, requirements, and purpose of the funds for fruitful results in business.

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