How does any organization meet its financial needs? It also depends on how they fulfill their financial needs. In this article, we will know how any organization fulfills its financial needs so that the set goals can be achieved. The requirements of finance may be different for every institution. Care should be taken that you choose the right option according to your requirements.
Arranging finance is an In a simple form, finance is defined as 'management of money or funds'. But modern finance is a set of many commercial activities. Since finance is essential for the functioning of individuals, business institutions and governments, therefore the field of finance is also divided into three types- 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 and means. 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, the capital invested by the shareholders in the company, and the cooperative society is called 'proprietary capital. Types of fund requirements
Generally, the financial requirements of any enterprise are divided into the following three parts—
(1) long-term capital,
(2) medium-term capital and
(3) short-term capital. But modern financiers now divide the financial needs of business or industry into only the following two parts:
(I) long-term or permanent finance or capital, and
(II) Working and short-term finance or capital.
An enterprise or business undertaking requires both long-term funds (fixed capital) and short-term funds (short-term capital) while making its financial plans. While estimating this, it is important to pay proper attention to both your total financial requirements and profit-earning potential. In this regard, it should avoid both situations of over-capitalization and under-capitalization. For this, the entrepreneur should first comprehensively investigate the requirements of funds. It is necessary to estimate the funds in the enterprise to meet the needs of the organization. Generally, finance is provided to an enterprise or organization to fulfill the following needs.
1) Fixed Assets - for the arrangement of i.e. purchase of fixed capital, such as land, building, plant and machinery, furniture and fittings, etc.
(2) Current Assets - for provision of working capital, such as raw material and other stock, for credit sale, bills receivable, payment of 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 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, purchase of goodwill, etc.
(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 dividends 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 loan 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 – The 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 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) Through loans from commercial banks, commercial banks generally provide financial assistance in the following forms:
(a) overgrowth
(b) cash credit
(c) Loans and advances
(d) Loan against mortgage of goods
(y) Encashing and purchasing bills.
(6) Financing through public deposits – Public deposits are given for a period ranging from six months to twelve-fifteen years. Public deposits are accepted at the time of commencement of production and are paid as soon as the product is sold.
(7) Grants from Central and State Governments – Central and State Governments currently provide financial facilities to industrial business units. These financial facilities are made available in the form of direct grants, giving loans, purchasing shares and debentures, giving guarantees, providing assistance in foreign cooperation, etc.
8) Risk Capital – Risk capital means providing resources to those enterprises in which there is a risk of risk or loss. The purpose of risk capital is to provide finance to new business ventures. The function of venture capital is to provide finance to new early-stage companies.
(9) Loans by State Governments – The interest rate on loans taken from State Governments is very high. In the case of government units, it is even less. The District Industries Center has the right to approve loans.
(10) Other sources of raising funds – There can be the following sources of raising funds also
(a) Loan from the country's bankers
(d) customer advance
(b) depreciation fund
(y) Loan from promoters
(c) commercial borrowing
From the above discussion, the sources of finance for industry and business become completely clear. Through these mediums, the institutions get finance and continuously move forward on the path of progress and development and provide important support in making the nation prosperous. After obtaining loans and financial assistance from various institutions, entrepreneurs make arrangements to invest it as per the financial plan. An entrepreneur should always keep in mind that no work should stop due to lack of capital, but it is also not appropriate to have more capital than required in business. Also, there should be a proper balance between ownership and loan capital.
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