Role in Industrial Financing - Institutional financing in India, Indian Financial system Video Lecture | Indian Financial System - B Com

sources of Finance when choosing finance
for a business it's essential that it's
adequate for the needs of the business
for example making sure that it's
actually enough to pay for what it is
you need it's also important that it's
appropriate and won't leave the business
with massive interest payments if it is
already burdened with other high monthly
payments finance can come from internal
or external sources if it comes from
internal sources it's likely to come
from three sources retained profits from
previous years after all deductions
sales of assets such as machinery and
more effective use of capital
this may include chasing debtors and
negotiating longer credit periods with
suppliers all of these sources are a
great way of raising large amounts of
cash external finance is generated from
outside the business in a variety of
ways the main sources are loan capital
venture capital ordinary share capital
and personal funding loan capital is one
of the most common ways of funding a
business loans are often used to
purchase fixed assets such as land and
machinery typically they are repaid in
monthly installments and the bank will
usually require collateral in the event
of a business defaulting although large
amounts of funding are available loans
are becoming increasingly difficult to
get and the application process can be
long winded furthermore too many loans
increase the company's gearing to
dangerous levels business bank accounts
will often come with an overdraft
facility that will allow the business to
withdraw more money from the bank than
it has in its account it's a flexible
short-term method of borrowing extra
money however it's important to remember
that interest is calculated on a daily
basis and it can be recalled at very
short notice
venture capital is an extremely risky
type of investment that a venture
capitalist will make in a business which
they believe has huge growth potential
venture capital provides long-term
committed share capital to help
companies grow and succeed venture
capitalists typically prefer to invest
entrepreneurial businesses obtaining
venture capital is very different from
taking out a loan with a bank banks have
a legal right to interest on a loan and
repayment of the capital regardless of
whether the business is a success
whereas venture capital is invested in
exchange for an equity stake in the
business as a shareholder the venture
capitalists return is dependent on the
profitability of the business this
return is earned when the venture
capitalist exits by selling its
shareholding when the business is sold
to another owner alternatively a company
might want to use ordinary shares to
raise cash to do so they would raise new
shares and offer them to new or existing
shareholders the market value of a
company shares is determined by the
price another investor is prepared to
pay for them in the case of publicly
quoted companies this is reflected in
the market value of the ordinary shares
traded on the stock exchange
lastly owners of small businesses may
choose to invest their own money into
their business this money could come
from personal savings inherited funds
personal bank loans for example they may
make this decision because they
desperately want their business to work
and also because it's difficult for
businesses to get credit the biggest
risk is that if the business fails the
owner loses their investments or assets
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