5.2.2—Internal and external finance

Internal finance comes from within the business, such as retained profit or sale of assets. External finance comes from outside, such as loans, overdrafts, trade credit, leasing or share capital.

Internal funds avoid some interest or dilution but may be insufficient and have opportunity cost. External funds add capacity but bring repayment, security, information or control conditions.

Selling an unused vehicle may fund a modest upgrade; a new factory usually needs a larger external source and a plan for repayment or investor return.

Internal does not mean free, and external does not always mean long-term debt.