Q.3:- What is the difference between internal and external sources of raising funds? Explain.
|S. N.||Internal Sources of Finance||External Sources of Finance|
|(i)||Internal sources of funds are those that are generated within the business.||External sources of funds include those sources that lie outside and organization, such as suppliers, lenders, and investors.|
|(ii)||Examples are accelerating collection of receivables, disposing of surplus inventories and ploughing back of profit.||Examples are lssue of debentures, borrowing from commercial banks and financial institutions and accepting public deposits.|
|(iii)||The internal sources of funds can fulfill only limited needs of the business. Cost of internal funds is low.||Large amount of money can be raised through external sources. External funds are more costly.|
|(iv)||Business is not required to provide security while obtaining funds from internal sources.||Business is required to mortgage its assets as security while obtaining funds from external sources.|