Internal and External Sources of Finance

Categories: BusinessFinance
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I will explain the various sources of financing, a few of which are internal and external to the Loxford Service unit. I will state the advantages and drawbacks of each of the sources of finance. Loxford Business System use both internal and external sources to get money in order to run business Unit successfully.

Source of Finance

Internal or external
Appropriate to the Loxford Company Unit
Maintained Profits
A quantity of cash saved aside from the organisation earning to be utilized when necessary.

The cash doesn’t need to be paid back and there is no interest. Likewise they are flexible as management -have complete control over how the cash is reinvested and what part is kept rather than paid as dividends. The disadvantages are:

There will dissatisfied shareholders as they will get lower dividends. Also maintained revenue is not readily available for new company as they main aim will be to endure and break even, so therefore they will either make no profit or little profit.

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The Loxford Company will only utilize maintained profit if the quantity is big enough, if not then there will be no requirement to utilize the retained revenue.

Owners Savings

Cash from the owner’s individual savings.
Low-cost– because there is no interest that has to be paid.
Flexible– the cash can be used for whatever reasons the owner please.

The downsides are:
It is risky – as you might squander your cash.
Inadequate cash – The money might not be enough.

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The Loxford Company System might use the owners fund if there is sufficient readily available nevertheless in order for business to broaden effectively the owners fund may not be enough.

A loan arrangement under which the bank extends credit up to an optimum quantity.

Versatile- there when required, Efficient – allows a company to make necessary payments and maintains capital.

Quick– quick and easy to set up.
Useful temporary cash
The disadvantages are:
Costs- overdrafts carry interest is often at much higher rates than loans, therefore making it expensive for a business for long-term borrowing. Recall – Unless specified in the terms and conditions, the bank can recall the entire overdraft at any time. This may happen if you fail to make other payments, or if you have broken terms and conditions; though sometimes the banks simply change their policies. They are terms and conditions.

The Loxford Business Unit may use an overdraft as its quick process so it will give the business immediate money. Also this type of finance is suitable because the money will be available when needed.

Venture Capital

Money provided by investors to start up firms.

Willingness -The investors are more willing to invest.
Gain information – The investors are a valuable source of information, advice and resources. Value added services – such as mentoring, alliances and advice. Provides funding that a business company needs to expand its business.

The disadvantages are:
Control- the investors will expect a say in decisions.
Long process- It can be a long and complicated process. Lots of paper work required to provide such as a business plan, including financial records.
Accounting Fee -The business will have to pay legal accounting fees whether or not they will successful in securing funds.

Loxford Business Unit may use a venture capitalist for professional help and advice about achieving the necessary grades although this process will be long and complicated, it will be worth it in the long-term because it mean that students will achieve good grades overall. Bank Loan

Borrowing money from the bank over a period of time which is then to be paid back with interest.

Reliability – Loans are very reliable and secure, you are assured the money for the duration of the loan (unless you break terms and conditions).
Complicated process-
Must have right documentations such as business plan and cash flow forecast. Money will be paid back with interest.
A bank loan will be efficient for the Loxford Baines Unit because they will be given a large sum of money, which is to be paid back slowly and in instalments.

Cite this page

Internal and External Sources of Finance. (2016, Aug 22). Retrieved from

Internal and External Sources of Finance
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