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



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.