What type of finance refers to internal sources in a business?

The correct answer is equity finance, as it pertains to funds that a business generates from its own operations. Equity finance specifically refers to financing obtained from the owners or shareholders of the business. This can involve retained earnings, which are profits that have been reinvested back into the business instead of being distributed as dividends.

Using internal sources of finance, such as retained earnings, allows businesses to maintain control over their operations and avoid the costs associated with external forms of financing, like interest payments on loans or obligations to external investors. This makes equity finance a vital component of a company's long-term funding strategy.

Debt finance, on the other hand, involves borrowing money and is considered an external source because it requires repayment with interest, often from financial institutions or through issuing bonds. External finance generally encompasses both debt and equity obtained from outside the business. Working capital relates to the funds necessary for day-to-day operations and does not specifically denote internal financing.