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SOURCES OF FUNDS FOR ENTREPRENEURSHIPThe sources and methods which a business enterprise will use to raise finance depend on theperiod for which funds are required. According to time period the financial requirements ofbusiness may be classified into three categories given belowi.Long term finance: It is required for investment in fixed assets such as land, building,machinery, plant etc and for financing expansion programmes. Such finance is generallyneeded for a period of ten years or more. Shares, debentures, retained earnings and loansfrom financial institutions are the main sources of long term finance.ii.Medium term finance: It is required for investment in permanent working capital and forrepayment of debts. It is raised for a period of more than one year and less than ten years.Redeemable preference shares, debentures, loans from financial institutions etciii.Short term finance: It is required for purchasing working assets and for meeting day today working capital needs of business. The main source of short term finance is tradecredit.An enterprise requires finance to carry its business activities. An entrepreneur has to ensure proper utilization of funds in order to get maximum possible returns on funds invested.An entrepreneur requires i.Fixed capital to meet its fixed capital requirements such as purchase of land and building,plant and machinery replacement of old machines etcii.Working capital to meet its working capital requirements such as rent, payment of salaries and wages, purchase of raw materials and other miscellaneous expenses.FIXED CAPITALFixed capital is used in investment of fixed assets. The amount of fixed assets owned or used by a business unit. The main features of fixed capital are as follows:i.Purchase of fixed assets: The fixed capital is normally used to purchase fixed assets. Apart of the fixed capital is also used to meet promotional and development expensesincurred at the time of promoting and expanding the company.ii.Low liquidity: The fixed capital represented by fixed assets cannot generally be sold andencashed without spending considerable time and effort.1
iii.Profit generation and capital appreciation: Fixed assets are the source of profits butthey can never generate profit by themselves. Current assets are necessary to enable fixedassets to do so. Some of the fixed assets such as land do appreciate in value over a periodof time. Other assets such as machinery depreciate over a period of time.iv.Source of risk: Fixed capital constitute the greatest source of risk for the investors’money because they result in a recurring burden of overheads like depreciation, interestrepairs and maintenancev.Permanent in nature: Fixed capital is more or less permanent in nature. It is generallynot withdrawn as long as the company carries on its business. It can be withdrawn at thetime of closure of the business by selling fixed assetsvi.Sources: The sources of fixed capital are mainly shares, debentures and long term loansfrom financial institutions.