Difference between Internal and External Financing

Difference between Internal and External Financing

Below this post is all about the detail explanation of internal and external financing? Finance is an important part of business and acted as a blood running in our body for life.

Difference between Internal and External Financing

Internal Financing

Retained earnings: When a company has profits, it can make the decision to separate part of them or their entirety to reinvest them in operations.

Issuance of shares: In the limited company, the contributions of the partners are captured through the issuance of shares, which may be common or preferred.

External Financing

  • Short term

By credit institutions: The operations that can be carried out with this type of entities to obtain short-term funds, among others, are the following:

  • Direct loans
  • Discount of documents
  • Secondary loans
  • Other sources: Companies can obtain funds through other modalities, such as:
  • Advance customer
  • Accounts of suppliers


By credit institutions: The destination of these credits is oriented in particular to strengthen the other sources: fixed assets of the industries and are generally backed by mortgage and / or collateral. There are other ways to attract resources, such as financial leasing and the issuance of obligations.

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