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What are the sources of finance?

Updated: Jun 18, 2023

Every business needs financing

These finances can come from various sources, either internally or externally. Which source would depend on the circumstances of the business, such as if it is a

  1. Startup or an established business,

  2. Large or a small firm,

  3. Profitable or not

  4. What will it be financing

  5. Amount of fund needed

Internal sources would mean finances would have been from

  1. The sale of asset(s)

  2. Shareholders' funds, or

  3. Retained profits, and

  4. Personal financing (for sole trader and partnership)

These personal financing could be from the personal savings of the business owner or borrowings from family or friends. These amounts are usually small.

Should it be from an external source, financing could be short-term or long-term. This is determined by the amount borrowed. A large amount would likely require long-term (more than 1 year) to pay of debt, while a smaller amount could be repaid within a year (short-term). It is also determined by how fast the borrower can repay.

The amount required is determined by the purpose of the financing or what the funds will be used for. In general, these are what financing is needed for.

A Startup

  1. Premise rent

  2. Licences or fees

  3. Operating assets such as transport

  4. Materials or machines for production

Business Expansion

  1. Research and development

  2. New machines or equipment

  3. Business takeover

  4. Setup operation abroad

Business Survival

  1. Cover losses

  2. Repay short-term expanses such as working capital


  1. Venture Capital

  2. Fixed Capital

  3. Short-term finance

  4. Long-term finance

  5. Working capital


  1. Define ‘crowd-funding’. (2 marks) May/June 2020/11

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