Internal sources of funds are sources within the business or funds provided by the entrepreneur.
Advantages of Internal Sources of Funds
- Due to the personal attachment one has to his finances, the funding is committed to the business and the intended projects therefore no room for wastages.
- You will not have to keep up with costs of servicing bank loans or debt finance, allowing you to use the capital for business activities.
- It allows you to be in full control of your business without external interference from other financial institutions.
- It reduces bureaucracy in decision making since ones is able to make choices without conflicting interest from other parties.
Disadvantages of Internal Sources of Funds
- Raising internal finance is demanding, costly and time consuming, and may take management focus away from the core business activities due to high involvement in securing internal funds.
- Business growth is limited due to the limited nature of internal funds compared to external sources of funds which give the provision of refinancing
- Often profits are not viable as a source of funds as the firm may have paid the profit in dividend to the shareholders, or perhaps already tied the money up for other reasons.
- One may lose personal property if he or she used internal sources of funds to raise capital and thus the business goes down
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