Internal: obtained from within the business itself.
External: obtained from sources outside of and separate from the business.
Debt: involves using money that must be repaid plus interest -> % extra to be paid on the loan.
Advantages: Owners retain full control, profits are not shared with lender, fixed interest rate, loan payments can be planned, relatively easy to get a loan.
Disadvantages: must be repaid, interest rates may be variable therefore can increase, high interest rates during difficult financial periods may cause problems with repayments, security is required to receive the loan.
Equity: this referred to raising money by selling shares in the company.
Advantages: benefit from shared ownership, shared risk, no monthly repayments, repayments (dividends) only necessary when firm makes profit.
Disadvantages: give up control of the business, must share profit, only available to limited companies, legally complicated and expensive to set up and manage.
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