Sources of Corporate Finance — Secretarial Practice STD 12 Commerce / Arts — Question

• for various purposes
• at different stages
• for different term/period

(ii) The nature and size of the business determine the actual requirement of funds.

(iii) The company collects huge funds through different sources depending on the time period the funds are needed.

The various sources of finance available to the business may be as follows.
(a) External Sources: When capital is raised from outsiders/ outside the firm.

• Used for collecting initial capital

The important external sources are:

• Issue of shares
• Issue of debentures/bonds
• Public deposits
• A loan from financial institutions
• Bank Credit

(b) Internal Sources:

• The capital is made available from within the organisation.
• This is developed after a few years of profitable working of the firm.
• The important internal source of finance is retained profit also known as ‘ploughing back of profit.’
• The undistributed profit of the firm is re-invested in the business.

The external sources and internal sources can be further classified depending upon the financial requirements as:
(a) Long-term source: A business requires long-term finance for meeting fixed capital needs i.e. for a long duration.

The main sources of long term finance may be:

• Owned capital
• Debt capital

(b) Short-term source: The short-term funds are required for meeting short-term requirements i.e. working capital requirement. The short term funds are arranged by means of

• Public deposits
• Bank credit
• Trade credit
• Loans from Directors
• Advance from customers
• Native money lenders
• Government assistance