Questions Business and Entrepreneurship

What are the types of business funding?


Yadu Prasad

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For a smooth running of a business, the owner needs a strong command over the sources which can support with proper funding. Even it is a big one or not, every step of business requires a fund, and it is not possible for an owner himself to arrange for the funds all by himself. He needs to depend on the investors for it. The more business gets funding, the more it can grow fast. Funding is also a factor for a successful business with lots of skilled employees. Here you can know about the various types of financing in a business.

1. Business Bank Loans

Nowadays, the Government, as well as the Private banks, are very cooperative and active in granting an initial lump sum amount as loans to the persons who are willing to start a new business. Even the rate of interests for fulfilling the loan amount is also quite less and can be returned in a very few amounts with installments. The procedures for applying for this loan is straightforward and structured. You should not miss this opportunity to start a business. 

2. Equity Capital

Equity capital is again one of the familiar types of funding when it comes to business funds. This type of funding is divided into two categories-  Paid-up Capital and Share Application Money. Here the equity holders remain as a part of the share market and invest a certain amount which keeps on increasing with the share market value. Accordingly, the profit amount goes on increasing. Though this type of funding is quite costly, yet it is the safest means for financing. 

3. Debentures

A debenture is a term which is related to debt. In this funding, the company acknowledges for some particular clause on which the investor is granting fund to the business and later the debt is being returned as per the rate of interest to the said investor as the business grows and reach its goals. It is a long term funding source and can be both secured and unsecured debentures. The company who can grant debentures are certified under the Certificate of Commencement of Business, permitted by the Articles of Association of the Company. 

4. Preference Share Capital

According to the Companies Act, 2013, Preference share capital is also a type of equity funding but here the funds are provided with fixed returns. There is also a provision to give a fixed dividend every year. Here the investor needs good knowledge about the stock exchange and as the value is increased the fund can be redeemed. 

5. External Commercial Borrowing

This is a debt taken from an external source, and it may be a national or a foreign funding agency. The funds may come in the form of suppliers credit or commercial loans or buyers credit, etc. 

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