Sources of Finance for New and Existing Businesses

MFRD
LO 1.1 and 1.2

 Different sources of finance are present in business with the help
of which enterprise can easily satisfy its financial needs. Selecting
most appropriate financial source depends on the nature of
business, its size and type of operations being carried out in the
company
 Further, to avoid unfavourable situations appropriate sources are
adopted by the management which enhances organizational
performance in the market. Long and short/ medium term sources
are present in business but decision has to be taken which source
has to adopt which is cheap and can enhance profitability level
Information pack for new and existing businesses which Identifies the
sources of finance available to business

Share
capital
Retained
earnings
Bank
loan
Cash
manageme
nt
Different sources of
finance

 Share capital: It is regarded as one of the most effective source of finance
which usually every organization considers. In order to satisfy financial needs
business can issue equity shares in the market through which large number of
investors can be attracted. This source of finance is generally suitable for
businesses which are old and large. Companies which are operating on wider
platform can issue shares in the market and can easily raise additional funds
with the help of this
 Retained earnings: It is the next effective source of finance which business
can easily consider. Retained earnings are the amount saved by company in
order to meet any unforeseen contingency. This type of source can be easily
considered by large sized organizations that are having strong financial base
and in turn this can easily satisfy financial needs of the entity in the most
efficient manner
 Bank loan: Taking loan from financial institutions also supports organization
in satisfying its financial needs and in turn acts as a development tool.
Further, various banks are present in the market who can provide loan to
company at a cheaper rate of interest. In order to satisfy financial needs,
company can compare interest rate of different banks and can obtain funds
from specific financial institution present in the market
Different sources of
finance