Internal And External Sources Of Finance

We can generally differentiate two sources of financing which are:

INTERNAL SOURCES

Traditionally, the major sources of finance for a limited company were internal sources:

• Retained profit
• Working capital
• Sale of assets

EXTERNAL SOURCES

Ownership Capital

Owners’ refers to those people/institutions who are shareholders. Sole traders and partnerships do not have shareholders – the individual or the partners are the owners of the business but do not hold shares.

Shares are units of investment in a limited company, whether it be a public or private limited company.

Shares are generally broken down into two categories:

• Ordinary shares
• Preference shares

Non-Ownership Capital

Includes the following:

• Debentures
• Other loans
• Overdraft facilities
• Hire purchase
• Lines of credit from creditors
• Grants
• Venture capital
• Factoring and invoice discounting
• Invoice discounting
• Leasing