Internal finance

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6 Terms

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internal finance

finance that comes from inside the business.

comes from the owner’s capital, retained profits or sale of assets.

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owner’s capital

personal savings.

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retained profits

the profit that has been generated in previous years is reinvested back into the business.

cheap source of finance.

4
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sale of assets

selling business assets which are no longer required e.g. machinery, land, buildings

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benefits of using internal finance

  • often free, no interest payments.

  • doesn’t involve third parties who may want to influence business decisions.

  • businesses that may fail credit checks (bank loans) can access internal finance more easily.

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Drawbacks

  • opportunity costs involved with the use of internal finance - one retained profits have been used it is not available for other purposes.

  • it may not be sufficient to meet the needs of the business.