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Internal and external finance of a business
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[QUOTE="Jasz, post: 269364, member: 61772"] [FONT=Verdana]External finance is a major component of the business. Without it, a company cannot continue to operate and may even be forced to shut down. External financing is provided by lenders who are interested in earning a profit on their investment. The primary function of external finance is to provide working capital, funds that allow a company to meet its obligations for goods and services as they come due. This includes paying for raw materials, labor costs, rent and other expenses. For example, if a company needs to buy materials for production but does not have enough cash on hand to pay for them at market prices, it will turn to an outside source for help. Financial institutions such as banks are often willing to lend money against collateral such as inventory or equipment in order to facilitate this type of transaction. The most common form of external financing involves borrowing from financial institutions such as banks or other lenders. Companies may also obtain loans from private investors (individuals or firms). In either case, these loans are often secured by specific types of assets (e.g., receivables generated from customer sales) or other forms of collateral such as stocks and bonds held by the lender.[/FONT] [/QUOTE]
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Internal and external finance of a business
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