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4 Advantages of Internal Sources of Finance for your Business

As an entrepreneur, the only proof that you’re ready to take risks and are committed to your business is by yourself becoming your first investor. At least, that’s how most entrepreneur start their businesses. How will an investor and lender believe in your project or business idea if you’ve never committed a single cent to it yourself? Personal investment, therefore, remains the number one source of financing for start-ups. 

The fact that your business is growing doesn’t mean that you have to walk into a bank and get a loan. You can manage your company capital through “internal finance,” whereby you pay for business expenditures or expand to new markets out of capital infusions from business owners, money the company generates from its operations, or surpluses from sale of business assets. Understanding how internal funding can benefit your business will help you strategically plan and make effective finance decisions for both the short-term and long-term. 

Stay in Control

There’s no better way to retain ownership and control over your business than by using internal sources to fund your business. You won’t have to worry about an investor’s or bank’s approval before funding an expansion or acquisition. When you borrow from a bank, you have no other option than to repay the money consistently according to schedule. It doesn’t matter how your business is performing. An investor may ask for a board seat with your business, want part ownership of the company, and have a say in the day to day running of the business. Internal funding gives you the flexibility to plan and schedule repayments for when it corresponds to your company’s earnings. 

Make Interest Savings

Financing through bank loans come with interest rates and original fees. Interest rates vary from one lender to the other, but they still add up as an expense and decrease your profit margins. When you finance your business using internal sources like the sale of company assets or cash generated from the business operations, you reap the benefit of not making expensive monthly interest payments. As a result, your business is left with more money in the bank. 

Plan your Business Growth

It’s not uncommon for businesses, after receiving financing from outside, to have the illusion that they have the cash to spare only to realize there’s less money as soon as the capital infusion runs out. And they still have to consistently pay for the business loans, with interest. Using internal sources of finance helps the business owner make the most effective financial decisions for strategic planning. Your company will be more proactive about conserving cash. 

Maximize your Earnings

Every business is unique and has its own goals. It’s not uncommon for lending institutions to give loan terms that can limit a business’s ability to go ahead with its plan and make money on its investment. For example, you can get a business loan to invest on a piece of commercial property. The lender will finance the project but on condition that your business can not build for residential purposes. The loan terms will limit you to build for commercial purposes, thereby hindering your ability to maximize its earnings. With internal funding, your company is at liberty to build anything, as long as it’s feasible and legal. If your in Perth, Western Australia there are alot of options for your business loan needs.