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What is finance?
Money used to purchase things the business needs
or want.
What is a source of finance?
It is a method of getting hold of the money you need.
Sources of finance are the most explored area
especially for the entrepreneurs about to start a new
business. It is perhaps the toughest part of all the
efforts.
Page 3
What is finance?
Money used to purchase things the business needs
or want.
What is a source of finance?
It is a method of getting hold of the money you need.
Sources of finance are the most explored area
especially for the entrepreneurs about to start a new
business. It is perhaps the toughest part of all the
efforts.
There are various sources of finance classified on
the basis of :-
?
Time period
?
Ownership and control and
?
Source of generation
Page 4
What is finance?
Money used to purchase things the business needs
or want.
What is a source of finance?
It is a method of getting hold of the money you need.
Sources of finance are the most explored area
especially for the entrepreneurs about to start a new
business. It is perhaps the toughest part of all the
efforts.
There are various sources of finance classified on
the basis of :-
?
Time period
?
Ownership and control and
?
Source of generation
1.ACCORDING TO TIME-PERIOD:
Sources of financing a business are classified based
on the time period for which the money is required.
Time period are commonly classified into following
three:
I..Long Term Sources of Finance
II.Medium Term Sources of Finance
III.Short Term Sources of Finance
Page 5
What is finance?
Money used to purchase things the business needs
or want.
What is a source of finance?
It is a method of getting hold of the money you need.
Sources of finance are the most explored area
especially for the entrepreneurs about to start a new
business. It is perhaps the toughest part of all the
efforts.
There are various sources of finance classified on
the basis of :-
?
Time period
?
Ownership and control and
?
Source of generation
1.ACCORDING TO TIME-PERIOD:
Sources of financing a business are classified based
on the time period for which the money is required.
Time period are commonly classified into following
three:
I..Long Term Sources of Finance
II.Medium Term Sources of Finance
III.Short Term Sources of Finance
I. Long Term Sources of Finance
?
Share Capital or Equity Shares
?
Preference Capital or Preference Shares
?
Retained Earnings or Internal Accruals
?
Debenture / Bonds
?
Term Loans from Financial Institutes, Government, and Commercial
Banks
?
Venture Funding
?
Asset Securitization
?
International Financing by way of Euro Issue, Foreign Currency
Loans, ADR, GDR etc.
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FAQs on PPT - Sources of finance - Accountancy and Financial Management - B Com
| 1. What are the different sources of finance for businesses? |  |
Ans. There are various sources of finance for businesses, including:
- Equity finance: This involves raising funds by selling ownership shares in the company.
- Debt finance: Businesses can borrow money from banks or other financial institutions and repay it with interest.
- Retained earnings: Companies can use their accumulated profits to finance their operations or investments.
- Trade credit: This involves purchasing goods or services on credit from suppliers.
- Venture capital: Startups and high-growth companies can receive funding from venture capitalists in exchange for a share of ownership.
| 2. What is the difference between debt and equity finance? | |
Ans. Debt finance involves borrowing money from external sources, such as banks or financial institutions, and repaying it with interest over a specified period. It does not involve giving up ownership of the company. On the other hand, equity finance involves raising funds by selling ownership shares in the company. Investors who contribute equity finance become shareholders and have a claim on the company's profits and assets.
| 3. How does trade credit work as a source of finance? | |
Ans. Trade credit is a form of short-term financing where businesses purchase goods or services on credit from their suppliers. Instead of paying cash upfront, the buyer agrees to pay the supplier at a later date, usually within 30 to 90 days. This allows businesses to fund their operations without immediately paying for the goods or services received. Trade credit terms are typically negotiated between the buyer and supplier, including the credit period and any applicable discounts or interest charges.
| 4. What are retained earnings and how can they be used as a source of finance? | |
Ans. Retained earnings are the accumulated profits that a company has retained for reinvestment or future use. Instead of distributing all profits to shareholders as dividends, companies retain a portion of the earnings to finance their operations or investments. These retained earnings can be used as a source of finance for expansion, research and development, acquisitions, or other business initiatives. By utilizing retained earnings, companies can avoid external borrowing or diluting ownership through equity finance.
| 5. How does venture capital work as a source of finance? | |
Ans. Venture capital is a form of equity finance where investors provide funds to startups or high-growth companies in exchange for a share of ownership. Venture capitalists typically invest in companies with high growth potential and expect a significant return on their investment. They often provide not only financial support but also mentorship and industry expertise. Venture capital can be a valuable source of finance for businesses that have innovative ideas or disruptive business models but may lack sufficient funds to scale up their operations.
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