Exploring Finance Options for Business Success

MEANS OF FINANCE

When seeking money for business, one need not only look at the easily available sources, but must explore possible sources and then decide about the most suitable and proper mix of getting finance. For having financial assistance one must consider the following: Cost of borrowings Time factors . i) Period for which funds are needed . ii) Time taken to obtain money

. 2) External Sources 1. Internal Sources Internal Sources of Funds include the following: . a) Own savings and investments . b) Personal loans from PF/LIC/Cooperative Bank etc . c) Personal borrowings from relatives and friends . d) Money raised through mortgage of personal assets like shares, land, building etc . e) Profit earned on transferred from existing business/investment or trade Though it is necessary to explore all resources, it is not advisable to use up all these sources in the initial stage of setting up an enterprise, so as to exhaust them all. Note: The tapping of resources and raising finance through these sources is

External Sources The Entrepreneur makes his decision considering all the pros and cons of available sources. Information on some of the external available sources given below will help the entrepreneur in deciding and exploring: a) Term-loan Long Term Loan In order to acquire fixed assets for setting up an enterprise, finance requirements will be for long time. Financial institutions and Banks give loans for such purposes depending upon the type of assets and amount desired. The duration varies from three years to eleven years.

Leasing of plant and equipments is the most recent and popular sources of external finance. The finance companies or leasing companies provide the needed equipments or plants on lease basis i.e. they purchase on behalf of the client and give them on lease. Clients pay some nominal deposit and monthly rent for the equipments taken on lease. Its real advantage lies in the conversation of capital and for this reason it is invaluable. Leasing should never be undertaken where there is any doubt as to the company s abilities to meet lease payments regularly. Lease rents are fully tax deductible. Pay as you to go is a

d) Hire-Purchase The fixed assets are given on Hire Purchase basis to clients, where some initial (down) payment/deposit is required to be made and rest of the amount is payable to installments. However, the ownership is not transferred to the client till all amount is repaid. The agreement has the necessary provisions for repayment and at the end of the agreement validity of the title passes to the client. Although the financier is the legal owner, the hirer is permitted to depreciate the goods in his own book of

Working capital Loan: For the day to day working of the unit, Banks give finance for working capital needs of the unit. The amount and time vary with the finance needs and types of assets. This facility is normally available for a period of one year; renewed every year and is given against hypothecation or mortgage of assets.

Read a Small Note You need a long-term loan of 5-10 years to purchase land, building and machinery or equipment for your project. If someone asked you a simple question: Would you lend me Rs.5, 000? First thoughts that would occur in your mind might be: - Do I know him? - Do I trust him? - Why does he need it? Is his demand genuine? - Will he return my money? Certain questions and doubts are bound to arise whenever financial matters are involved even in our everyday lives. Therefore, it is only natural that when you approach your bank financial institution for loan there would definitely be