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Sources of Finance
Page 2


Sources of Finance
Almost half of all new
ventures fail because
of poor financial
management
Why do we need to study 
finance?
Page 3


Sources of Finance
Almost half of all new
ventures fail because
of poor financial
management
Why do we need to study 
finance?
What is Finance?
?Who needs money?
? Every one? you?
? Can you or a business 
survive without cash? Why?
?So what is Finance? 
? First, how to have money
? …
Page 4


Sources of Finance
Almost half of all new
ventures fail because
of poor financial
management
Why do we need to study 
finance?
What is Finance?
?Who needs money?
? Every one? you?
? Can you or a business 
survive without cash? Why?
?So what is Finance? 
? First, how to have money
? …
Personal finance
? Where does money for individuals 
(personal finance) come from:
? Our own money in pocket
? Borrows: from friends or credit cards
? Received from Government if entitled to 
some benefits
? Earned by doing something or sales of 
products and services
Page 5


Sources of Finance
Almost half of all new
ventures fail because
of poor financial
management
Why do we need to study 
finance?
What is Finance?
?Who needs money?
? Every one? you?
? Can you or a business 
survive without cash? Why?
?So what is Finance? 
? First, how to have money
? …
Personal finance
? Where does money for individuals 
(personal finance) come from:
? Our own money in pocket
? Borrows: from friends or credit cards
? Received from Government if entitled to 
some benefits
? Earned by doing something or sales of 
products and services
Business finance
? Business finance: a business has the same source of 
money for individuals
? Its own money
? Borrows: from friends, colleagues, banks and lending 
institutions
? Received from Government grants. Eg. new in 
deprived sectors
? Earned by sales of products and services
? From venture capitalists (seeking profit for spare 
funds) 
? From private individuals (Business Angels – often 
seen in entertainment sector)
? Private companies
? Microloans

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FAQs on PPT: Sources of finance - Accountancy and Financial Management - B Com

1. What are the main sources of finance for businesses?

Ans. The main sources of finance for businesses include equity financing, debt financing, retained earnings, and external funding sources such as bank loans and venture capital. Equity financing involves raising funds by selling shares of the company, while debt financing involves borrowing money that must be repaid with interest. Retained earnings are profits that are reinvested in the business rather than distributed to shareholders.

2. How do businesses decide between debt and equity financing?

Ans. Businesses decide between debt and equity financing based on several factors, including the cost of capital, the level of control they want to maintain, their ability to repay loans, and their financial position. Debt financing can be less expensive but requires regular repayments, while equity financing may dilute ownership but does not require repayment.

3. What are the advantages and disadvantages of using retained earnings as a source of finance?

Ans. The advantages of using retained earnings include no interest payments and no dilution of ownership. It is a cost-effective way to finance growth. However, the disadvantages include the potential for underinvestment if profits are not sufficient, and it requires a strong retention policy to ensure profits are reinvested effectively.

4. What role do venture capitalists play in financing businesses?

Ans. Venture capitalists provide funding to startups and small businesses that are believed to have long-term growth potential. In exchange for their investment, they typically require equity ownership and may also seek a role in the management of the company. This source of finance is beneficial for businesses that may not qualify for traditional bank loans.

5. What are the typical terms associated with bank loans for businesses?

Ans. Typical terms associated with bank loans include the interest rate, repayment schedule, loan term, and collateral requirements. Interest rates may vary based on the borrower’s creditworthiness and the type of loan. The repayment schedule outlines how often payments are made, and the loan term indicates the duration over which the loan must be repaid. Collateral may be required to secure the loan.

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Oct 05, 2025 Last updated

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