Q.3:- What is the difference between internal and external sources of raising funds? Explain.
Answer:-
| 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. |