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What is internal financing?

Internal Financing

This happens when a company uses its own profits as a source of capital for a new investment  rather than getting the money from outside sources.

Where have you heard about internal financing?

If you're in business, you might have heard about how it's sometimes seen as a quicker and cheaper way to obtain funding than external financing . This is because the company doesn't incur transaction costs  or pay taxes linked to dividends .

What you need to know about internal financing.

There are several sources of internal financing available to companies. For example, some of its profits may have been kept back to fund future expansion, or the company may be able to sell assets it no longer needs. Advantages of internal financing include that the capital is readily available, and the company does not have to go through a third party. If the company needs to looks elsewhere, it may turn to external financing. This could include obtaining funding from its creditors or a financial institution such as a bank.

Find out more about internal financing.

To find out more about how companies finance their assets, check out our guide to capital structure.

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