sources of business finance

1. Sources of
business
finance
By:-
Preetha jawahar

2. preface
It gives me utmost pleasure in presenting this
project. In this project I have included all the
details about sources of small business that are
required to be submitted. I have tried my level
best to present this project this project in most
interactive way as possible. I have presented the
information in a way that can be easily be
comprehend by the readers.
I hope this project of mine
will be liked by everyone.

3. acknowledgement
For the successful accomplishment of this
project .I would like to thank my teacher
Mrs.Sreelekha,whose initiative was
instrumental in the accomplishment of this
task. I thank the case board for giving us an
opportunity to showcase our creativeness
through this project. This project has given me
an insight into the different aspects of a mall.

4. Why do business need finance?
Business may need funds for following
reasons:-
 They are just starting business and
need to buy premises and equipment.
 They have an opportunity to introduce
a new product or service.
 A major item of equipment or building
needs to be brought up to date.

6. Fixed capital requirement Working capital requirement
 These funds are used
for holding current
assets such as stock of
material, bills
receivables and for
meeting current
expenses like salaries ,
wages, taxes and rent.
 These funds are
required by the
business for its day-to-
day operations.
The funds that are used
to purchase the fixed
assets like
land,building,plant and
machinery,and furniture
and fixtures are called as
fixed capital
requirements of the
enterprise.
The funds required in
the fixed assets remain
invested in the business
for a long period of time.

7. Sources of
finance
External
financing
Preference
shares
Debentures
Loan from
bank
Internal
financing
Equity share
capital
Retained
earnings
Loan
financing
Short term
Medium
term
Long term

8. Internal sources
Retained
earnings
Equity
share
capital

9. Ownershi
p capital
Non
Ownershi
p capital

10. Time periods for finance
Finance is generally considered to be
either:
Short term
Up to 3
years
Medium
term
3-10
years
Long term
Over 10
years

11. Debentures
 Just like shares, DEBENTURES are also instruments for
raising long term finance.
 “debentures is a document that either creates a debt or
acknowledges it,& is a debt without collateral.”
 Debenture holders are termed as the creditors of the
company. They are paid a fixed stated amount of interest
at a specified intervals.
 Public issue of debentures requires that the issue be rated
by a credit rating agency like CRISIL.
Attributes:-
 Interest rates
 Convertibility
 Security
 Redemption
 Credit rating of trustee
 Debenture redemption reserve

13. Term loan
Term loan also known as term finance is loan made
by a bank/financial institutions to a business having
an initial maturity of more than 1 year and generally
repayable in less than 10 years.
Features Of Term Loans
Maturity
Negotiated
Security
Covenants- Negative And Positive
Repayment Schedule/Loan Amortization

14. Retained earnings
A company may retain a portion of net earnings for
use in the future.This is known as retained earnings. It
is a source of internal financing or self financing.
Merits:-
• It is a permanent source of funds for a company.
• It does not involve any explicit cost in the form of
interests.
• Has high operational freedom and flexibility.
• Enhances the capacity to cope up with the losses.
• It can increase the market price of the equity
shares of the company.

15. COMMERCIAL PAPER
A commercial paper(CP) is an unsecured,
short-term debt instrument issued by a
corporation, typically for meeting short-
term liabilities.
A commercial papers(CP) is:-
1.Issued by large banks & corporations
2.To garner money from the market
3.To meet short term needs

16. When & why was it introduced in
India?
1.It was introduced in India in 1990.
2.It was aimed at providing highly rated corporate
with a borrowing option.
3.So while they could borrow from a bank, now
with the help of a CP ,they could also borrow
from the open market.
4.Since CP is used to borrow directly from the
market, the rate of interest is lesser as compared
to banks.

17. factoring
Factoring is an ongoing arrangement between the client
and the factor, where the sales of the goods and
services are made on open account terms and the
invoices for the same for the purpose of funding,
collection and sales ledger administration.
Factoring involves a long-term relationship between the
buyer and the seller with the whole turnover assigned
to the factoring company.
Features of factoring:-
1. Obtaining funds is cheaper as compared to bank credit.
2. This source of funds is flexible and accelerates the cash
flow.
3. The client can concentrate on functional areas of
business.

18. ORIGIN

19. As of today,
 Worldwide, factoring volume is more
than USD 700 billion a year.
 Spread over nearly 60 countries and
covering more than 1,00,000
businesses.
 Particularly in developed countries,
factoring is an accepted way of
conducting business.

20. Public deposits
 Public deposits are an important source of financing the
medium-term and long-term requirements of a company.
This implies any money received by a company through the
deposits or loans collected from the public.
 The public includes the general public, employees and
shareholders of the company but excludes the money
received in the form of shares and debentures.
INTEREST RATES
The company offer interest to the investors over public
deposits.
The company generally offer rate:-
o 8 to 9 % rate FOR ONE YEAR
o 9 to 10% rate FOR TWO YEARS
o 10 to 11% rate FOR THREE YEARS

21. COMMERCIAL BANKS
Commercial banks are like other financial
institutions(e.g.: money lenders, indigenous
bankers, cooperative societies, agricultural and
industrial credit institutions) which are in the
business of lending and borrowing of money or
credit.
Functions of commercial banks
 Accepting deposits
 Advancing loans
 Agency services
 General services

22. Lease financing
• A lease is a contractual arrangement calling for the
lessee(user) to pay the lessor (owner) for use of an
asset.
• Leasing is an process by which a firm can obtain the
use of a certain fixed assets for which it must pay a
series of contractual,periodic,tax deductible
payments.
Important terms
1. Lessee is the receiver of the services under the lease
contract.
2. Lessor is the owner of the assets.
3. Tenancy is the relationship between the tenant and the
landlord.
4. Term is the fixed or an indefinite period of time involved in
the lease contract.

23. Advantages of leasing:
Leasing is less-capital intensive than
purchasing, so it is more suitable for a
business which has constraints on its capital.
Leasing shifts risk to the lessor in cases where
the capital assets tend to fluctuate in value.
Leasing provides more flexibility to a
businesses which expects to grow in the
relatively to grow in the short term because a
lessee is not usually obliged to renew a lease
at the end of its term.

24. • The government has established financial institutions to provide
financial help all over the country. These institutions are
established by central & state governments.
• They provide both owned capital & loan capital for long and
medium term requirements. These institutions also conduct
market surveys and provide technical assistance and managerial
services too people who run the enterprises.
Special financial institutions:-
•Industrial Finance Corporation Of India
•State Financial Corporations
•Industrial Credit And Investment Corporation Of India
•State Industrial Development Corporation

25. Statistical study
Sources of finance

26.  ADR is a dollar-denominated negotiable
certificate. It represents a non-US company’s
publicly traded equity. It was devised in the late
1920s to help Americans invest in overseas
securities and to assist non-US companies
wishing to have their stock traded in the
American Markets.
 ADR were introduced as a result of the
complexities involved in buying shares in
foreign countries and the difficulties associated
with trading at different prices and currency
values.
American depository receipts(ADR)

27. GLOBAL DEPOSITORY RECEIPTS(GDR)
 A bank certificate issued in more than one country
for shares in a foreign company.The shares are
held by a foreign branch at an international bank.
The shares trade as domestic shares, but are
offered for sale globally through the various bank
branches.
 A financial instrument used by private markets to
raise capital denominated in either U.S. dollars or
Euros.
 The voting rights of the shares are exercised by the
Depository as per the understanding between the
issuing company and the GDR holders.

28. Process to issue GDR/IDR

29. Difference between ADR & GDR

30. Books:-
Business studies-NCERT.
Business studies-Poonam Gandhi
Websites:-
www.google.com

31. Thank you.