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Question
Answer each of these questions in about fifty words:
State some mushrooming sources of raising finance in the business.
Solution
A company may raise funds for different purposes depending on the time periods ranging from very short to fairly long duration. The total amount of financial needs of a company depends on the nature and size of the business. The scope of raising funds depends on the sources from which funds may be available. Here, we shall discuss some mushrooming sources available to an entrepreneur to raise finance; Long-Term and Medium- Term Capital, they have the following options:
- Capital markets:
• Issue of Shares
Equity shares: The rate of dividend on these shares depends on the profits available and the discretion of directors. Hence, there is no fixed burden on the company. Each share carries one vote.
• Preference shares: Dividend is payable on these shares at a fixed rate and is payable only if there are profits. Hence, there is no compulsory burden on the company’s finances. Such shares do not give voting rights.
• Issue of Debentures. - Angle investors: Business angle or an angle investor, is an affluent individual who provides capital for a business start-up and early stage companies having a high-risk, high- return matrix usually in exchange for convertible debt or ownership equity.
- Venture capital: Venture capital is an equity based investment in a growth-oriented small to medium business to enable the investors to accomplish objectives, in return for minority shareholding in the business. It is a way in which investors support entrepreneurial talent with finance and business skills to exploit market opportunities and obtain long-term capital gains.
- Specialized financial institutions Specialized Financial Institutions (SFIs) make an important source of medium and long term financing amongst all the financial institutions in India, to the industry.
A. At national level/All India development banks
- Industrial Development Bank of India (IDBI)
- Small Industries Development Bank of India (SIDBI)
- Industrial Finance Corporation of India (IFCI)
B. At state level
- State Financial Corporation (SFC)
- Tourism Finance Corporation of India (TFCI)
- State Industrial Development Corporations (SIDC).
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