Sources of Finance – Classification

There are many sources of finance that businesses can obtain their finance from.

A. Internal Sources of Finance

Internal money that belongs to the business. Sole traders and partnerships will be relying mainly on internal sources of finance such as personal funds. 

Sources of Finance – Internal:

1. Personal funds
2. Retained profits
3. Sale of Fixed Assets
4. Reductions in Working Capital

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B. External Sources of Finance

External money raised from sources outside the business. Most of the external sources of finance will be appropriate for larger incorporated businesses such as Private Limited Companies (Ltd.) and Public Limited Companies (plc).

Sources of Finance – External: Short-term 

1. Family and friends
2. Overdraft
3. Trade credit
4. Debt factoring
5. Microfinance providers

Sources of Finance – External: Medium-term

1. Leasing
2. Sale-and-leaseback
3. Hire purchase

All in all, businesses can fund their activities using both internal sources of finance and external sources of finance. 

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