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Sources of Finance for Businesses, funds generated inside business -…
Sources of Finance for Businesses
External Equity
funds provided by sources outside the business
e.g. banks, other financial institutions, governments, suppliers or financial intermediaries
Increased funds = increase earnings/ profits
Finance through creditors/ lenders = debt finance
Outside sources of finance - firms must generate sufficient earnings to make regular repayments on the borrowed money
Increased risk for business using debt
Interest + bank + government charges paid onto of amount borrowed
(There are tax deductions for interest payments)
Internal Equity
Owner's Equity
Retained Profits
most common source of internal finance
profits retained as a cheap and accessible source of finance for future activities
profit kept in the form of retained earnings
Majority of Australians rely on internal sources of funds to finance growth
External (debt)
Long-term
Short-term
funds generated inside business