Source of finance – find out what are the source of finance

This article will be telling you all about source of finance, it will start with telling you the definition then after that you will be explained everything that goes with it. If you are interested in getting to know more things about source of finance stay here and keep reading.

Internal sources of finance

Let’s start with explaning what internal sources is. This internal sources refers to money that comes from a within a business. There are couple internal methods a business can use like for example:

• owners capital – it refers to money that were invested by the owner of a business,
• selling assets – it it when a business make a profit,
• retained profit – it involves selling products that are owned but the business.

External sources of finance

External sources of finance refers to the money that comes from outside the business. There are some external methods that a business can be using like for example:

• family,
• friends,
• bank loans,
• overdrafts,
• business angels,
• venture capitalists,
• new partners,
• share issue,
• trade credit,
• leasing,
• government grants,
• hire purchase.

What are funding sources?

Companies are always looking for sources of finance to grow their business. And there are different sources of founding like for example:

• debt capital,
• equity capital,
• retained earnings.

Facts about sources of finance

There are in fact many different facts that all people should be aware of, and here we will give you most of them. The list of those facts are:

• bank loan is money they were borrowed from a bank by business or an individual and it is being paid off with interest,
• equity capital doesn’t need of making interest payments to the borrower,
• founding sources includes private equity, venture capital, grants, donations,
• when it comes to the most important factor business financing is the ability to pay back is of utmost importance,
• businesses raise funds with borrowing debt privately from a bank or sometimes by going public,
• there is a process of raising funds to fulfill a certain project called Crowdfunding,
• small businesses can count on help coming from Angel investors whos are generally wealthy individuals,
• many people look for a money in their own personal savings or equity,
• there is something you should also be aware of this that the drawback of borrowing money with debt is this that borrowers has to make interest payments,
• when it comes to the debt financing borrower issues debt securities like corporate promissory or bonds,
• equity capital comes from external investors and costs nothing howevere there will be non tax benefits,
• borrowing funds involve a great deal of risk what differ from funds owned by business,
• equity financing can take form where the friend or family member gets an ownership interest in the business,
• retained profit means the situation when a business makes a profit so it can be reinvested into the business if it will be decided to expand,
• you shall do your lease payments annually,
• equity stake can be in a form of membership units, common or preferred stock,
• there is something called institutional investors and it is when a company or organization invests money on behalf of other people.

Conclusion

Now you know that founders of start-up businesses may take a look to private sources like family and friends as well when they are starting a business, sounds cool right?

So now when you are about to open a new business you probably know everything you are supposed to know to about source of finance. We hope that we help you and that it made your life a bit easier.