What Sources of Finance Are
Every business, from a sole trader selling handmade goods to a multinational corporation, needs money to operate, grow, and survive difficult periods. The question is never simply "how much?" but "where should it come from?"
Sources of finance are the methods a business uses to raise the money it needs for its operations, investments, or growth.
All sources fall into one of two categories. Internal sources draw on funds already within the business or its owner. External sources bring money in from outside the business.
The choice between them depends on the business's size and legal structure, how long the money is needed for, how much it costs to access, and whether the owner is willing to share control. These factors are worth keeping in mind throughout this subtopic, because exam questions almost always ask you to justify a recommendation for a specific business context, not just list options.
Internal Sources of Finance
Internal sources are funds a business generates or accesses from within itself. Because no external party is involved, they tend to be faster to access, cheaper, and they preserve the owner's control. They are usually the first option a business considers.
There are three internal sources you need to know: personal funds, retained profit, and the sale of assets.