Internal finance

internal finance

finance that comes from inside the business.

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

owner’s capital

personal savings.

retained profits

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

cheap source of finance.

sale of assets

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

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.

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.