SOURCES OF FINANCE
ENTREPRENEURSHIP

INTRODUCTION
• Finance is the lifeblood of business concern
• Arrangement of the required finance to each
department of business concern is highly a
complex one and it needs careful decision.
• Sources of finance mean the ways for
mobilizing various terms of finance to the
industrial concern.

Classification of sources of fund
SOURCES OF
FINANCE
Period
Long-term
sources (5-10)
● Equity Shares
● Preference Shares
● Debenture
● Long-term Loans
● Fixed Deposits
* Venture capital
Short-term
sources
● Bank Credit (w.c)
● Customer Advances
● Trade Credit
● Factoring
● Public Deposits
● Money Market
Instruments (CP)
Ownership
ownership
source
●Shares capital,
earnings
● Retained
earnings
●Surplus and
Profits
Borrowed
capital
● Debenture
● Bonds
● Public deposits
●Loans from
Bank and
Financial
Institutions.
Generation
Internal source
●Retained
earnings
●Depreciation
funds
● Surplus
External
sources
● Share capital
● Debenture
● Public deposits
●Loans from
Banks and
Financial
institutions
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SOURCES OF FINANCE
▶ Issuances of shares.
▶ Loans from commercial banks.
▶ Debt financing
▶ Financial Institutions.

ISSUANCE OF SHARES
▶ The captial generated by issuance of shares is known as share capital. The
capital of a company is divided into small units called shares. Each share has
its nominal valve.
▶ There are two types of shares which are normally issued by a company.
1. Equity shares.
2. preference shares.
▶ The money raised by issue of equity shares is called equity share capital.
▶ The money raised by issue of preference shares is called preference share
capital.

DEBT FINANCING
▶ In debt finance, debentures are issued in different denominations at
different interest rates.
▶ The investors in debentures are paid certain fixed percentage of interest.
The investor are not becoming the owner of the business, so there is no
dilution of control.
▶ Debentures are preferred as more easy way to get finance although it is a
burden on the company.
▶ In debentures the interest is considered as expense compared to profit after
tax.

LOANS FROM COMMERCIAL BANKS
▶ They provide funds for different purposes ass well as for different time
periods.
▶ Banks provides different types of loans to business for different sizes and of
all sizes and in many ways, like overdrafts, term loans, cash credits,
purchase/discounting of bills, and issue of letter of credit.
▶ The rate of interest charged by banks depends on various factors such as the
characteristics of the firm and the level of interest rates in the economy.

FINANCIAL INSTITUTIONS
▶ Various central government and state government financial institutions are
major sources of finance for a new venture. These institutions are providing
funds to the entrepreneurs based on their strength of the business models.
▶ The most difficult part is to satisfy them in terms your business model in
terms of technical, economical, commerical, managerial ability of your
proposed management, marketing and every aspect of the business.
▶ Based on reviewing all facts of the business the authority provides the fund at
certain percentage of fixed interest rates.