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When entrepreneurs start a new business, it is essential to know the sources of business finance. The financial requirements of the business are categorized as fixed capital requirements and working capital. In this article, we will learn more about the sources of business finance:
Business finance is the term used for the financial needs of the business to fulfill its operations. Businesses require an adequate amount of money to produce goods, provide services, and other business needs.
Fixed capital needs - These types of funds are required to buy the fixed assets for the business such as machinery, land, furniture, etc.
Working capital needs - These funds are required to meet daily needs for paying bills, buying raw materials, etc.
The funds required for the fixed and working capital varies according to business type. If a business is working on day-to-day trading, it will require lesser fixed capital and higher working capital. On the other hand, a manufacturing company will require more fixed funds. Companies can gather more details of financing source at Indipost.in.
Entrepreneurs have various sources from which they can get funds for the smooth functioning of the company. Whereas, in the case of entrepreneurship, funds can only be taken from friends, family, or loans. There are 3 major types of business finance sources.
Sources of finance are further divided into 3 types based on periods:
Long-term - These sources provide funds to the companies for more than 5 years. These types of sources include shares, debentures, etc.
Middle Term - These funds are provided for more than 1 year but less than 5 years. It includes borrowing from banks or public deposits.
Short term- Those funds sources that provide money for less than 1 year are called short term. Companies can take short-term funds from trade credits, loans, and commercial papers.
On the basis of ownership, the source of business finance is further divided into owner's funds and Borrowed funds. Company owners can get more details about financing sources at Indipost.in.
Owner’s Fund - if the owner of the company provides a fund to carry out operations, it is called the owner's fund. Some examples of owner’s funds are shares and retained earnings.
Borrowed fund - when the company borrows funds from outsiders, these are called borrowed funds.
Basis of the Source of Generation
The source of generation of the funds is also crucial in determining the type of business sources. Here are 2 types of business finance sources based on generation:
Internal Source - If the funds are generated from inside the business, are called the internal source. The internal source includes receivables collection, surplus inventories disposal, etc.
External sources - The external sources of funds are those lying outside the organization. Examples include suppliers, lenders, and investors.
Funds are essential for the uninterrupted functioning of the business. When an entrepreneur plans a company, the very first need is funds. You can identify the sources of finance suitable for your business depending on the financial needs of your company.
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