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C HAPTER 8 S OURCES OF B USINESS F INANCE LEARNING OBJECTIVES After studying this chapter, you should be able to: state the meaning, nature and importance of business finance; classify the various sources of business finance; evaluate merits and limitations of various sources of finance; identify the international sources of finance; and examine the factors that affect the choice of an appropriate source of finance.
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182 BUSINESS STUDIES 8.1 I NTRODUCTION This chapter provides an overview of the various sources from where funds can be procured for starting as also for running a business. It also discusses the advantages and limitations of various sources and points out the factors that determine the choice of a suitable source of business finance. It is important for any person who wants to start a business to know about the different sources from where money can be raised. It is also important to know the relative merits and demerits of different sources so that choice of an appropriate source can be made. 8.2 M EANING , N ATURE AND S IGNIFICANCE OF B USINESS F INANCE Business is concerned with the production and distribution of goods and services for the satisfaction of needs of society. For carrying out various activities, business requires money. Finance, therefore, is called the life blood of any business. The requirements of funds by business to carry out its various activities is called business finance. A business cannot function unless adequate funds are made available to it. The initial capital contributed by the entrepreneur is not always sufficient to take care of all financial requirements of the business. A business person, therefore, has to look for different other sources from where the need for funds can be met. A clear assessment of the financial needs and the identification of various sources of finance, therefore, is a significant aspect of running a business organisation. The need for funds arises from the stage when an entrepreneur makes a decision to start a business. Some funds are needed immediately say for Mr. Anil Singh has been running a restaurant for the last two years. The excellent quality of food has made the restaurant popular in no time. Motivated by the success of his business, Mr. Singh is now contemplating the idea of opening a chain of similar restaurants at different places. However, the money available with him from his personal sources is not sufficient to meet the expansion requirements of his business. His father told him that he can enter into a partnership with the owner of another restaurant, who will bring in more funds but it would also require sharing of profits and control of business. He is also thinking of getting a bank loan. He is worried and confused, as he has no idea as to how and from where he should obtain additional funds. He discusses the problem with his friend Ramesh, who tells him about some other methods like issue of shares and debentures, which are available only to a company form of organisation. He further cautions him that each method has its own advantages
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This note was uploaded on 01/19/2012 for the course BUSINESS 3BU taught by Professor Andrewclarke during the Fall '09 term at Central European University.

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