Why Business Needs Finance and What are the Available

Sources of Finance

Presented By

Rakesh Kumar

Meaning of Business Finance

Money required for carrying out business activities is called business finance.

Businesses need money for…

For starting up Everyday bill payments

Expansion

Internal Growth

Take over bid

Replace machinery/equipment

Why Do Businesses Need Finance

Why Do Businesses Need Finance?Starting Up – Buildings, machinery, raw materials and office equipment

WORKING CAPITAL – Short term finance required for the day-to-day running of a business

Unforeseen Events – Sudden decline in sales, large customer fails to pay on time or pay expenses quickly.

Sources of Finance

Internal Sources of Finance

INTERNAL SOURCES OF FINANCE – Finance which is raised internally, it does not increase the debts of the business.

Examples:Retained profitPersonal savings Sale and leasebackSale of unwanted assets

External Sources of Finance

EXTERNAL SOURCES OF FINANCE – Finance provided by people or institutions outside the business, creates a debt that will require payment. Examples: Loans Overdraft Shares Debentures

Sources of FinanceFinance sources may be internal or external, but they may also be short, medium or long termShort Term: Finance the business for up to 1 year.Medium Term: Finance the business for up to 5 years .Long term: Finance the business for more than 5 years.

Short term FinanceBank overdraft facilityTrade credits Factoring Loans Creditors.

Medium term Finance

LeaseHire purchase Medium term loan

Long term FinanceSharesDebenturesLong term bank loansMortgageGrantsAdditional partners

Questionnaire 1.what is the primary source of short, medium & long credit? 2.Source of finance depends on ? 3.How to raise capital in business? 4. Are personal loans considered income? 5.what is the difference between shares & debentures?