Question

Read the passage given below and answer the questions that follow.

ABC Ltd. is a hardware manufacturing company listed on National Stock Exchange. The company operates only in Delhi- NCR. The management plans to expand their area of operation across the country. They require funds for their expansion plans.

Briefly explain each source of finance given below.

State whether these sources can be used by ABC Ltd. or not for raising funds. Give a reason to support your answer.

1. Angel Investors
2. Factoring
3. Global Depository Receipts
4. Loans from Financial Institutions

Answer 1

1. Angel Investors:
   1. A wealthy person who invests their own funds in a company during its early stages usually as a start-up is known as an angel investor.
   2. Angel investors wish to acquire ownership positions in the firms they support, yet they have no claim to the company's assets due to the unsecured nature of their funding.
   3. Angel investors are seeking for shares in ABC Ltd., and the company is already listed on the National Stock Exchange, so ABC Ltd. can take use of this funding source.
2. Factoring:
   1. The term "factory" (also for accounts receivable financing) describes the process of raising money through the sale or mortgage of book debts.
   2. Finance corporations are entities that give finance to businesses by purchasing accounts receivable outright against the security of accounts receivable. "Factoring" refers to the outright sale of accounts receivable.
   3. Factoring works well for little sums of money, yet ABC Ltd. wants to expand across the nation. For this reason, ABC Ltd. is unable to use this source of information.
   4. They demand a substantial amount of cash. Factoring is therefore not a practical way for ABC Ltd. to raise money.
3. Loans From Financial Institutions:
   1. The Indian government established many unique institutions in the country to provide long-term and medium-term financing to businesses.
   2. These development banks have become an important source of capital for the IPO of new companies as well as the modernization of established ones. These are known as financial institutions.
   3. Financial institutions include the Industrial Development Bank of India (IDBI), the Industrial Finance Corporation of India (IFCI), and others.
   4. ABC Ltd. can choose this funding source since financial institutions give long-term financial help as well as promotional, technical, and administrative services.