Sources of Finance for Private Companies: A Business Expansion Report

This report examines the various sources of finance available to a private limited company, "CONSTRUXIVE," for a new construction project focused on repair, alteration, and small-scale construction. The research question explores the need for finance in business, available funding methods, classification of finance sources, and the importance of source selection. The literature review highlights the challenges small businesses face in securing finance and their reliance on internal funding, owner's perception and goals, and bank debts. A case study on microfinance banks in Nigeria demonstrates their role in providing financial services to small and medium enterprises. The discussion section covers internal sources such as family and friends, and external sources like bank loans, third-party shares, and government schemes. The report concludes that selecting the appropriate source of finance is crucial for business development, emphasizing the significance of microfinance institutions in supporting small and medium enterprises. The report also discusses the roles of banks, shareholders, and lease agreements as sources of funds for business expansion.

Running Head: SOURCES OF FINANCE
SOURCES OF FINANCE
Name of the Student
Name of the University
Author Note

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Table of Contents
Title............................................................................................................................................2
Introduction................................................................................................................................2
Research Question......................................................................................................................2
Literature Review.......................................................................................................................2
Case Study..................................................................................................................................4
Discussion..................................................................................................................................5
References..................................................................................................................................8

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Title
The various sources of finance that are available for the private company for their
business expansion.
Introduction
The private limited company “CONSTRUXIVE” is planning to work on a new
construction project. The project will focus on repair, alteration and small scale construction
project. The business plan will focus on the goals and the tasks to do a successful business
transaction and build market share for attaining a successful competitive position in the
market. Hence, to complete this project sufficient funds are required from various sources.
Research Question
(a) What is the need of finance for doing a business?
(b) What are the available ways of funding?
(c) The basis on which the sources of finance can be classified?
(d) What is the importance of selection of these source of finance?
Literature Review
According to the author, there is no proper definition of small business. A small
business has less than 500 employees and it falls on the range of 0 to 200 employees. The
small and medium enterprises are the facilitators that plays an important role in economic
growth and development. They require very less capital for its growth and have more
potential for employment creation. They use yardsticks like investments a sales level to
measure the number of values, sales volume and the value of sheets in the business.
According to the author, small businesses generally face problems in funding their business
according to the size. Therefore, they generally prefer internal financing by accessing the
credit. Small business funding are largely depended on the business owners and the previous

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experiences & perception of funding. When firms proceeds into different life cycle of the
business, they have financial stress. When the firm is just strategy, then the businesses are
under-capitalized and depends more on the owner’s resource for financing the business.
When the business continues to expand its business then the existence of this finance equity
gap will increase and the business will seek finance with the help of bank debts. At this stage,
the owner of the business will lose control over the business (Singh and Wasdani 2016). This
is because, the business will seek partners, shareholders and venture capitalists for the new
equity. Many of the small business doesnot want to expand their business for this purpose,
they become stable for ten years without exchanging their business with some new equity. It
depends on owner’s growth intention to grow their business or not (Mian and Sufi 2018).
This means that, small business growth and the sources of finance are correlated with the
owner’s perception and goals. It is not the size of the business but the financial needs that has
been established with the owner’s objective that drive towards the business expansion. The
personality of business owners like seeking for business opportunity, objectives, future
outlook of the business. The authors found that, many of the business owners are risk averse
and they value stability of the business rather than taking risk of growing their business. It is
the level of satisfaction the owners choose for the business growth. Owners who are
dissatisfied by their business donot want to take risk and owners who are satisfied by the
business wants to take risk and grow their business (Wong, Holmes and Schaper, 2018). This
factor is important in profit maximisation of the business. The owners think that funding
through bank debt or extending funding will bring the business into higher risk in case of any
failure. Some of the sources like bank borrowing, external quality and investments in various
bonds and shares are various strategies for business expansion. Hence, owners refused bank
debts, loans or brining external partners in the business. They did not want to lose control
over the business. If the owners want to grow their business and seek opportunity for more

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technologies then they will have to access towards fund for investing in such technologies
(Saghir and Aston 2017).
Case Study
The main purpose of this case study is to enhance the recapitalization of microfinance
banks, which means to improve its financial stability and financial structure in order to
support its business growth of microfinance bank. This case study focuses on microfinance
banks that has been established by Nigerian government that helps in providing various
financial sources for small and medium enterprises to all over the country. Many of the small
and medium enterprises focuses on making better production through employee generation,
contributing more to the exports and maintaining equal distribution in terms of income.
Microfinance institutions delivers these financial services to the small and medium
enterprises. It provides all the revenue services like loans with lower interest rates, all type of
payment services, insurance services and money transfers. The case study has identified the
role on these microfinance and financial institutions. A primary data was collected through
interviews in 15 small and medium enterprises. Then the study was done to support the
business growth and expansion (Taiwo, Agwu and Benson 2016). The sample population is
from the small businesses in Lagos state of Nigeria. The study was conducted using simple
random technique to collect the sample size. Both the primary and secondary data has been
collected for the study on the basis of demographic characteristics. Secondary data was
collected from journal articles, internet and papers. It has been found from the study that both
the financial services and non-financial services provided by the microfinance banks and
other financial institutions are very much helpful for the small business of Nigeria. Nigeria
have shared innovative ideas with the financial institutions and business skills to provide
financial services to the small and medium enterprise. It is recommended that the
microfinance should expand their repayment period of loans for the customers, make a loan

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disbursement strategy to reduce the level of portfolio risk. Banks should support their clients
by providing training programs related to credit maximization of the clients. Microfinance
institutions and banks should minimise the rate of lending to the clients to allow interest
payments for a longer period of time. The case study also reveals that government should
focuses on increasing their effort in encouraging the microfinance banks and other small
institutions to support these small business for accessing funds for their business. They
should maintain regulations for providing long-term capital in term of pension and insurance
to the companies. Small business plays an important role in contributing themselves in the
economy, but it requires adequate resources for continuing its business growth. For this,
microfinance banks and other financial institutions can help these small business in providing
funds for their business growth. Hence, the above recommendations for microfinance banks
and other small financial institutions will help the business in meeting their basic financial
needs for the business growth.
Discussion
For a private limited company, different sources of funds have been taken on the basis
of its ownership. The funds will be collected from both the owners fund and the borrower’s
fund. Internal sources for finance will be used for sourcing the funds. Internal funds are used
form the family & friends. These are the loans taken by the families and friends. Loans from
banks are also used for the business (Oseifuah and Manda 2017). Financial institutions
provide the funds in the form of overdrafts and loans. These loans are provided for a certain
tenure period and is not there within the company for a longer period of time. Private
company also seeks bank overdrafts even if it is more expensive than loans. Funds will also
be issued from third party in the form of shares. From venture organisations, the private
limited company will be able to source a huge amount of funds. This is done when new
shares are issued by the company and the management will play a very important role in

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issuing the shares for the business. Funds will also be raised from government sources,
business schemes and borrowings from the banks. Company will issue share to raise funds
from the public. Ordinary shares will be issued for raising funds in the form of cash so that
the company’s ownership is not affected. Preference shares will also be issues along with the
ordinary shares to pay dividend in the form of the company’s profit to the shareholders. Lease
agreement will also be used to generate the cash in case of business failure. Lease will be
used in case of least funds for the business. Lease in the form of machinery and plant will be
used for the business (Nugroho et al. 2017). There will be an agreement done between the
financial institutions and the company to access their funds for the business (Connolly and
Jackman 2017). This will also be done by taking permission from the government assistance
by granting the cash in the form of shares and ensures that all the funds are raised from the
policy developed by the national government. These are the sources of the funds that will be
seek for the business expansion.
Conclusion
Therefore, it can be concluded that, for the private limited company, various sources
of funds are available and each sources have their own benefit. Before, seeking funds from
these sources, it is very important for the business to choose appropriate source to fund their
business. This means that, the company should take right decision. From the case study, it has
been found that most of the small business requires funds for the business development. The
small and medium enterprises can source their funds from micro banks and other financial
institutions. These institutions provide them all type of financial services in the form of loans,
overdrafts, borrowings, money transfers, insurance and payments. This means that, micro-
financing helps the small businesses in promoting themselves by providing them the essential
financial needs for the business needs. Hence, private limited company can also seek funds
from the microfinance banks or microfinance institutions for expanding their business. They

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can also use banks as a source of funds. Banks provide loan services for the companies. The
funds will also be raised from banks in the form of borrowings. Funds will be raised in the
form of ordinary shares from the public. This will be raised to protect the business from
ownership. Funds from the shareholders will be raised in the form of preference shares and
will be paid to them in the form of dividends as a portion of company profits. Lease
agreement will be done to access to plant and machineries in case of shortage of funds or
emergency need for the business. Funds will also be raised from venture organisations in the
form of shares. The overall funds for the business expansion will be raised by taking approval
from the government in the form of agreement. This will be done by following the funding
policy that has been established by the national government for the organisations.

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References
Ali, K. and Khalid, M., 2019. Sources to Finance Fiscal Deficit and Their Impact on
Inflation: A Case Study of Pakistan. The Pakistan Development Review, 58(1), pp.27-43.
Connolly, E. and Jackman, B., 2017. The Availability of Business Finance. RBA Bulletin,
December, pp.55-66.
Mian, A. and Sufi, A., 2018. Finance and business cycles: the credit-driven household
demand channel. Journal of Economic Perspectives, 32(3), pp.31-58.
Nugroho, L., Utami, W., Doktorlina, C.M., Soekapdjo, S. and Husnadi, T.C., 2017. Islamic
banking capital challenges to increase business expansion (Indonesia cases).
Oseifuah, E. and Manda, D.C., 2017. Awareness of State-Facilitated Sources of Finance
among Owner/Managers of Small and Medium-Sized Enterprises in South Africa. The
Journal of Accounting and Management, 7(2).
Saghir, M. and Aston, J., 2017. The Impact of Various Economic Factors in accessing
Finance within the Business Sector: Cases from UK Financial Services Companies.
Singh, C. and Wasdani, P., 2016. Finance for micro, small, and medium-sized enterprises in
India: Sources and challenges.
Taiwo, J.N., Agwu, E. and Benson, K.N., 2016. The role of microfinance institutions in
financing small businesses. JIBC, 21(1).
Wong, A., Holmes, S. and Schaper, M.T., 2018. How do small business owners actually
make their financial decisions? Understanding SME financial behaviour using a case-based
approach. Small Enterprise Research, 25(1), pp.36-51.