What is a financing arrangement? articlecg

what is the finance arrangement of funds?

Arranging finance is an important task after the legal establishment of the enterprise and the gathering of necessary resources. In the absence of finance, the plan of the entrepreneur cannot be realized. Therefore, the entrepreneur has to collect finance from various sources means which that Finance sources can be divided into two categories—(i) Proprietary capital sources; and (ii) debt capital sources. In the case of a proprietorship, the personal investment and capital of the entrepreneur, the capital invested by the partner in the partnership firm, and the capital invested by the shareholders in the company, and the cooperative society is called 'proprietary capital'.  what is finance or arrangement of funds?

An entrepreneur can get financial loans from banks, financial institutions, the Directorate of Industries, Khadi Village Industries, Small Industries Development Corporation, etc. The government has established several financial agencies to provide loans to small-scale industries.

Fundraising is the process of taking a decision regarding the amount of funds required for a new venture and how it will be structured. Thus, it can be said that raising funds in the context of an enterprise means obtaining funds in the form of capital and debt capital in sufficient quantity for the establishment, operation, and development of an enterprise.

What is a financing arrangement?

 What are common types of funds?

What is a financing arrangement?

Generally, the financial requirements of any enterprise are divided into the following three parts—

(1) Long-term capital, 

(2) Medium-term capital, an

 (3) Short-term capital. But modern financiers now divide the financial requirements of business or industry into the following two parts only.

     need to estimate the requirements of funds

An enterprise or business undertaking needs both long-term funds (fixed capital) and short-term profit-earning funds (short-term capital) while making its financial plan. While estimating this, it is necessary to pay due attention to both your total financial requirements and profit earning potential. In this regard, he should avoid both the situations of over-capitalization and under-capitalization. For this, the entrepreneur should first of all investigate the requirements of funds comprehensively. It is necessary to estimate the funds in the enterprise to meet the needs of the organization. Finance is often arranged for the enterprise or organization to meet the following requirements

(1) Fixed Assets - for the arrangement of i.e. purchase of fixed capital, such as land, building, plant and machinery, furniture and fittings, exploring, etc.

2) Current Assets - for provision of working capital, such as raw material and other stock, for credit sale, bills receivable, to pay day-to-day expenses (such as salaries and wages, rent, stationery, etc.).

(3) To meet the expenses related to promotion, such as exploring the commercial possibilities of business ideas, the expenses of completing the legal formalities in the establishment of the company, etc.

(4) Company Organisation - For the establishment expenses, such as expenses to be incurred for obtaining the services of managers and experts, etc.

(5) For the expenses related to strengthening the business, such as advertising and sales promotion, etc. to attract customers.

(6) For the cost of obtaining business finance, such as underwriting, commission, and brokerage, etc.

(7) To face future contingencies, that is, a visionary entrepreneur considers it necessary to arrange capital for immediate needs as well as to successfully face future contingencies.

(8) Intangible Assets - To acquire, such as Patents, purchases of goodwill, etc.


What are the main sources of raising funds?

The main sources of raising funds are as follows

   (1) By issue of equity shares - Equity shares are the basic foundation of any form of financial structure.

A dividend on equity shares is given after giving profit to the holders of preference shares. If nothing is left after paying dividends on preference shares, then nothing is given to equity shareholders.

(2) Preference Shares - Preference Shares Mainly two types of preference are received on preference shares, one is that dividend will be given at a fixed rate on preference shares before equity shares. Secondly, when the company is wound up, the capital will be returned to the preference shareholders first, then to the equity shareholders.

Preference shareholders do not have the right to attend and vote in the general meeting.

3) Through the issue of debentures – This is another important powerful means of obtaining industrial capital. A debenture is a certificate of debt taken by the company. The debenture holder is the creditor of the company and the responsibility for its repayment lies with the company. Interest is paid on debentures at a fixed rate. Debentures can be of many types, such as due debentures, bad debentures, mortgaged debentures, equitable debentures, bearer debentures, registered debentures, etc.

(4) Loans from Financial Institutions- Central government has established various financial institutions at the central level to provide financial assistance to the industries. Among them, the following are the major financial institutions working at the All India level-

(i) Industrial Finance Corporation of India Limited (IFCI),

(ii) Industrial Development Bank of India (IDBI),

(iii) Industrial Capital Investment Bank of India Limited (IIBI),

(iv) National Bank for Agriculture and Rural Development (NABARD), (v) Unit Trust of India (UTI),

(vi) Export and Import Bank of India (EXIM Bank),

(5) Commercial banks generally provide financial assistance in the following forms through loans from commercial banks.

(a) overdraft

(b) cash credit

(c) Loans and Advances

(d) Loan against mortgage of goods

(y) Discounting and purchase of bills.

(6) Financing through public deposits- Public deposits are given from six months to twelve-fifteen years. Deposits are accepted at the time of commencement of production and are paid as soon as the product is sold.

(7) Grants from the Central and State Governments- Presently the Central and State Governments also provide financial facilities to industrial business units. These financial facilities are made available in the form of direct grants, loans, purchases of shares and debentures, guarantees, assistance in foreign cooperation, etc.

(8) Risk capital - Risk capital refers to providing resources to those enterprises in which there is a risk of risk or loss. The purpose of venture capital is to provide finance to new business ventures. The function of venture capital is to provide finance to early-stage new companies.

(9) Loans by State Governments- The rate of interest on loans taken from State Governments is very high. In the case of government units, it is even less. The District Industry Center has the right to sanction the loan.

(10) Other sources of raising funds – There can be the following sources of raising funds

(a) Loan from country bankers

(d) customer advance

(b) Depreciation Fund

(y) Loan from promoters

(c) trade credit

The sources of finance of industry and business are completely clear from the above discussion. By getting finance through these mediums, the institutions keep moving forward on the path of continuous progress and development and provide important cooperation in making the nation prosperous. After obtaining loans and financial assistance from various institutions, entrepreneurs make arrangements to appropriate it according to the financial plan. The entrepreneur should always keep this thing in mind that no work should stop due to lack of capital, but it is also not appropriate to have more capital in the business. Also, there should be a proper balance between ownership and debt capital.

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