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

Long-term

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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