Understanding why a business needs to raise finance makes it much easier to select the most appropriate source of finance. Businesses need finance for a number of reasons.

New and established businesses may have to consider internal and external sources of finance for a variety of reasons. This topic explores the various sources of finance used by these businesses.

There is no single 'best source of finance for a business. The most appropriate source of finance will depend on the circumstances. The factors that influence decisions on which source or sources of finance to use can vary between new and established businesses.

An external source of finance refers to money that comes from outside the business. Using external sources of finance offers firms the opportunity to raise large sums of finance, but can bring disadvantages such as heavy interest charges.

There is no single 'best source of finance for a business. The most appropriate source of finance will depend on the circumstances. The factors that influence decisions on which source or sources of finance to use can vary between new and established businesses.

Businesses can raise finance from a number of sources. The most important are retained profits, the sale of assets, bank loans, mortgages, and the sale of shares.