There is no hidden fact that for running or starting a business a person needs funds and finances. Everyone who plans to start a new business does not have sufficient funds for their start up and therefore, they search for various sources of financing.
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Sources of Financing:-
Financial needs of a business depend upon the needs of the business and the needs of the person starting the business and so are the sources of financing. There are various sources available in the market for the purpose of financing but choosing the one depends on the business owner and type of business.
There are two major sources of financing available in the market and these are:-
- Equity Financing:-
When a business raises a part of their business ownership in the market in exchange of funds then it is referred to as equity financing. Under this type of financing the business owner raises some part of their business stake and divides that percent of stake into equity shares for the purpose of purchasing in the market.
- Debt Financing:-
This is the way of generating funds from the available creditors in the market. In this type of financing the funds are usually borrowed by some creditors with an assurance of repaying it within the specified time period. Also a person is liable to pay an amount along with some interest.
Other manner of financing are as follows:-
- Personal Savings: The first search for funds is by checking your own savings or equity. The personal savings also include retirement funds at early phase and so on.
- Life Insurance policies: A person pays a premium for taking life insurance policies so that can be used by the person as a big amount of money.
- Friends and relatives: Many times friends and relatives can help you for the shortage of money when you are starting a new business.
- Warrants: This is a special type of Instrument and this can be used for the purpose of long term financing.
- Government programmes: This is like various programmes are being runned by the government which help people get financing at low interest rates and so on.
