Question

What is the difference between internal and external sources of raising funds ? Explain.

Answer 1

$\begin{array}{ccc}\text{S.N.}& \text{Internal Sources of}& \text{External Sources of}\\ & \text{Finance}& \text{Finance}\\ \left(i\right)& \text{Internal sources of}& \text{External sources of}\\ & \text{funds are those that are}& \text{funds include those}\\ & \text{generated within the}& \text{sources that lie outside}\\ & \text{business.}& \text{an organisation, such as}\\ & & \text{suppliers, lenders, and}\\ & & \text{investors}.\\ & & \\ \left(ii\right)& \text{Examples are}& \text{Examples are issue of}\\ & \text{accelerating collection}& \text{debentures, borrowing}\\ & \text{of receivables,}& \text{from commercial banks}\\ & \text{disposing of surplus}& \text{and financial}\\ & \text{inventories and}& \text{institutions and}\\ & \text{ploughing back of}& \text{accepting public}\\ & \text{profit.}& \text{deposits.}\\ \left(iii\right)& \text{The internal sources of}& \text{Large amount of money}\\ & \text{funds can fulfill only}& \text{can be raised through}\\ & \text{limited needs of the}& \text{external sources.}\\ & \text{business.}& \text{External funds are more}\\ & \text{Cost of internal funds is}& \text{costly.}\\ & \text{low.}& \\ & & \\ \left(iv\right)& \text{Business is not required}& \text{Business is required to}\\ & \text{to provide security}& \text{mortgage its assets as}\\ & \text{while internal sources.}& \text{funds from external}\\ & & \text{sources.}\end{array}$