What Are Internal Funds?

Internal fund raising refers to the act of raising funds from its employees (including managers) to meet the needs of production and operation.

Internal fundraising

Generally can be divided into two forms.

1. Borrow from employees. The specific methods are:

(1) After obtaining the employee's consent in advance, deduct part or all of the employee's salary within a certain period of time;

(2) Sell corporate bonds or internal stocks to employees.

2. Issue shares to employees. Such stocks can be listed and traded. Obviously, this financing method does not constitute a corporate debt burden. At present, the internal fund-raising of Chinese enterprises is mainly based on borrowing from employees.

(1) The purpose of internal fund-raising is mainly to meet the needs of corporate liquidity and medium-term fixed asset renewal.

(2) The cost of internal fundraising is not high

(3) The scale of internal fundraising is relatively limited

Advantages of internal fundraising:

(1) Mobilize the enthusiasm of the employees of the enterprise.

(2) The procedures are simple and the financing cost is not high.

(3) It can play an emergency role when the enterprise is in trouble.

Disadvantages of internal fundraising:

The disadvantage of internal fundraising is that its scale is relatively limited, so it can only be used as a secondary and auxiliary financing method in corporate financing.