Sources of Fund for Business

Finance represents a very important ingredient for the survival of a business venture. Most of the time the amount that the owner of business started with as take-off grant may not be enough for needed business expansion. Hence, there is need to know other sources of fund available.

Classification of the Sources of Finance

We can classify the sources of finance into three, namely:

1. Short term sources: – This is due within one year repayment.
2. Medium term sources: – This is due in more than one year but within three years repayment.
3. Long term sources: – This is available for five or more years.

The following are specific sources of funds open to an entrepreneur

1. Bank overdraft: – Firm can raise more than what it has in its current account of commercial bank.
2. Self-funding: – The owner may raise money by himself to finance the business.
3. Personal saving: – Capital could be raised through previous savings from ones income.
4. Loan/Contribution: – Capital could be raised through borrowing from banks, co-operative societies, friends or relatives and through personal contribution.
5. Angel funding or Donation: – Capital could also be raised from donation from rich individuals.
6. Merging of firms: – This is the coming together of firms, and they equally bring their capital together in order to form a large capital
7. Hire purchase: – The business could take an asset from a hire purchase company and enter into agreement on terms of payment
8. Discounting of Bills: – The discounting of bills like bills of exchange and promissory notes helps to make capital available to firms before maturity date.
9. Trade credits/creditors: – This is a means whereby wholesalers act as financiers to firms, by giving money in advance of goods from where they are repaid.
10. Debentures:- This is a form of loan from members of the public in which the holder is entitled to a fixed rate of interest.
11. Government Grants: – Government gives huge capital to business like public corporation.
12. Inherited Capital: – This is capital left over by a dead person and used by another person in establishing or running already business unit.
13. Accruals/ Retained Profit:–  The profit of the firm not shared are ploughed back into the firm as capital

• Sale of excess or unwanted assets: – Assets of the firm which may not be used by the firm like land or machinery could be sold to raise more capital for the business.

• Tax holiday and rebates: – The growing firms can be given tax holiday and rebates to help them grow to maturity so as to be able to compete with existing ones.
• Equipment leasing: – Funds realized from equipment leased to other firms could be used to expand business.

EVALUATION (POST YOUR ANSWER IN THE COMMENT BOX BELOW FOR EVALUATION AND DISCUSSION)

1. Define shares.
2. List types of shares you know.
3. Explain bonds.