Sources of financing to Non Govt. Organizations

1. Sources of financing to
Non-Govt.
Organizations

2.  All the businesses uses appropriate source of
financing for reducing their risk levels and improve
the return.
 When you diversify your sources of financing, you
also have a better chance of getting the
appropriate financing that meets your specific needs.
 And it also demonstrates to the lenders that you're a
proactive entrepreneur.

3. Sources of start up financing
1. Personal investment
2. Family and Friends
3. Venture Capital
4. Angels
5. Business Incubators
6. Smart Leases
7. Customers
8. Debts financing (loans or bonds)
9. Equity financing (partnership or Stocks)
10. Retain Earnings(internal cash flow)

4. 1. Personal Investment: When borrowing, you invest some of your
own money—either in the form of cash or collateral on your assets.
This proves that you have a long-term commitment to your business.
2. Family and Friends: This is money loaned by a spouse, parents,
family or friends. A small or medium-sized private business raises their
capital with help of family members that will be repaid later as your
business profits increase.
3.Venture capital: It is a form of early-stage financing sought by
companies with high-growth ambitions and significant capital
requirements. It is provided by venture capital companies or
institutional investors rather than by individuals.
4. Angles: Angels are generally wealthy individuals or retired company
executives who invest directly in small firms owned by others. They are
often leaders in their own field who not only contribute their experience
and network of contacts but also their technical and/or management
knowledge.

5. 5. Business incubators (or "accelerators") generally focus on the
high-tech sector by providing support for new businesses in
various stages of development. Incubators, mostly hosting and
sharing services and other assets. An incubator might share the
use of its laboratories so that a new business can develop and test
its products more cheaply before beginning production.
6. A lease is a contract outlining the terms under which one party
agrees to rent property owned by another party. It guarantees
the lessee, the tenant, use of an asset and guarantees the lessor,
the property owner or landlord, regular payments from the lessee
for a specified number of months or years.
7. Customers. Advance payments from customers--can give you
the cash you need, at a relatively low cost, to keep your business
growing. Advances also demonstrate a level of commitment by
that customer to your operation. This strategy allowed them to
grow faster and with limited resources.

6. 8. Debt Financing (bank loan) Bank loans are the most
commonly used source of funding for small and medium sized
businesses.
9. Equity Financing(Partnership) A partnership is an
arrangement in which two or more individuals share the
Capitals, profits and liabilities of a business. Various
arrangements are possible, all partners might share liabilities
and profits equally, or some partners may have limited liability.
Not every partner is necessarily involved in the management
and day-to-day operations of the business.
10. Retain Earnings (internal cash flow) it refer to the
percentage of net earnings not paid out as dividends, but
retained by the company to be reinvested in its core business,
or to pay debt. It is recorded under shareholders' equity on
the balance sheet.

7. Corporate Short term financing
1.Spontaneous Financing
Accounts Payable (Trade Credit from Suppliers)
Accrued Expenses(Wages and Taxes)
2. Negotiated Financing
Money Market Credit
 Commercial paper Short-term, unsecured promissory notes,
generally issued by large corporations.
 Letter of credit (L/C) A promise from a third party (usually
a bank) for payment in the event that certain conditions are
met.
 Bankers’ acceptances (BAs) Short-term promissory trade
notes for which a bank (by having “accepted” them)
promises to pay the holder the face amount at maturity.

8.  Unsecured Loans: A form of debt for money borrowed that is not
backed by the pledge of specific assets.
 Secured (or Asset-Based) Loans
Line of credit (with a bank): An informal arrangement between a bank
and its customer specifying the maximum amount of credit the bank will
permit the firm to owe at any one time.
Revolving credit agreement: A formal, legal commitment to extend
credit up to some maximum amount over a stated period of time.

9. Corporate Long term financing
Loans: A loan is the act of giving money, property or other material goods
to another party in exchange for future repayment of the principal amount
along with interest or other finance charges. A loan may be for a specific,
one-time amount or can be available as an open-ended line of credit up to a
specified limit or ceiling amount. Loans can come from individuals,
corporations, financial institutions, and governments. They offer a way to
grow the overall money supply in an economy as well as open up
competition and expand business operations. The interest and fees from
loans are a primary source of revenue for many financial institutions such
as banks, as well as some retailers through the use of credit facilities.
Bonds: A bond is a fixed income investment in which an investor loans
money to an entity (typically corporate or governmental) which borrows
the funds for a defined period of time at a variable or fixed interest rate.
Bonds are used by companies, municipalities, states and governments to
raise money and finance a variety of projects and activities.

10. SECURED AND UNSECURED BONDS. Secured bonds are backed by a
pledge of some sort of collateral. Bonds not backed by collateral are
unsecured. A debenture bond is unsecured. A “junk bond” is unsecured
and also very risky, and therefore pays a high interest rate.
TERM, SERIAL BONDS, AND CALLABLE BONDS. Bond issues that
mature on a single date are called term bonds; issues that mature in
installments are called serial bonds. Callable bonds give the issuer the right
to call and retire the bonds prior to maturity.
CONVERTIBLE, COMMODITY-BACKED, AND DEEP-DISCOUNT
BONDS. If bonds are convertible into other securities of the corporation for
a specified time after issuance, they are convertible bonds.
Commodity-backed bonds (also called asset-linked bonds) are
redeemable in measures of a commodity, such as barrels of oil, tons of coal,
or ounces of rare metal.
Deep-discount bonds, also referred to as zero-interest debenture bonds,
are sold at a discount that provides the buyer’s total interest payoff at
maturity.

11. REGISTERED AND BEARER (COUPON) BONDS. Bonds
issued in the name of the owner are registered bonds and
require surrender of the certificate and issuance of a new
certificate to complete a sale. A bearer or coupon bond,
however, is not recorded in the name of the owner and may be
transferred from one owner to another by mere delivery.
INCOME AND REVENUE BONDS. Income bonds pay no
interest unless the issuing company is profitable. Revenue
bonds, so called because the interest on them is paid from
specified revenue sources.

12. Equity Financing by Issuing Stocks:
Preferred:
A preferred stock is a class of ownership in a corporation that has a
higher claim on its assets and earnings than common stock. Preferred
shares generally have a dividend that must be paid out before dividends
to common shareholders, and the shares usually do not carry voting
rights. Preferred stock combines features of debt, in that it pays fixed
dividends, and equity, in that it has the potential to appreciate in price.
The details of each preferred stock depend on the issue.

13. Common stocks:
Common stock is a security that represents ownership in a
corporation. Holders of common stock exercise control by
electing a board of directors and voting on corporate policy.
Common stockholders are on the bottom of the priority ladder
for ownership structure; in the event of liquidation, common
shareholders have rights to a company's assets only
after bondholders, preferred shareholders and other debt holders
are paid in full.

14. Significance of proper financing:
1.Increasein valueofthefirm:
Asoundfinancingofacompanyhelpstoincreasethemarketpriceofsharesand
securitieswhich,inturn,leadtoincreaseinthevalueofthefirm.
2.Utilizationofavailablefunds:
Agoodfinancingenablesabusinessenterprisetoutilizetheavailablefundsfully.A
properlydesignedcapitalstructureensuresthedeterminationofthefinancialrequirements
ofthefirmandraisesthefundsinsuchproportionsfromvarioussourcesfortheirbest
possibleutilization.Itprotectsthebusinessenterprisefromover-capitalizationandunder-
capitalization.
3.Maximizationofreturns:
Aproperfinancingenablesmanagementtoincreasetheprofitsofacompanyintheform
ofhigherreturntotheequityshareholdersi.e.,increaseinearningspershare.Thiscanbe
donebythemechanismoftradingonequityi.e.,itreferstoincreaseintheproportionof
debtcapitalinthecapitalstructurewhichisthecheapestsourceofcapital.Iftherateof
returnoncapitalemployed(i.e.,shareholders’fund+long-termborrowings)exceedsthe
fixedrateofinterestpaidtodebt-holders,thecompanyissaidtobetradingonequity.

15. 4. Minimization of cost of capital:
With diversified financing any business enterprise maximizes shareholders’ wealth through
minimization of the overall cost of capital. This can also be done by incorporating long-term debt
capital in the capital structure as the cost of debt capital is lower than the cost of equity or
preference share capital since the interest on debt is tax deductible.
5. Liquidity position:
A sound financing structure never allows a business enterprise to go for too much rising of debt
capital because, at the time of poor earning, the solvency is disturbed for compulsory payment of
interest to .the debt-supplier.
6. Flexibility:
A good financing structure provides a chance for expansion or reduction of debt capital so that,
according to changing conditions, adjustment of capital can be made.
7. Undisturbed controlling:
A good financing structure does not allow the equity shareholders control on business to be
diluted.
8. Minimization of financial risk:
If debt component increases in the capital structure of a company, the financial risk (i.e., payment
of fixed interest charges and repayment of principal amount of debt in time) will also increase.
9. Speculative motives:
A good financing structure allows liquidity and flexibility than it can also increase the chances
for earning through speculation in the financial market.

16. Thank You