Capital requirements differ according to the nature and size of the business.
Requirements of capital and sources of capital for different types of business firms are:
- Sole Proprietorship and requirement of Capital- As Sole Proprietorship operates at a small scale so it requires a limited amount of capital.
- In this the owner brings his own capital
- Retained profits on his own contribution
- Loans from friends and relatives
- Borrow money from banks and financial institutions
- The Central and State government provides special Financial assistance to small scale businesses.
2. Partnership Firm and capital requirement- It is bigger than the sole trader business.
- As partners contribute the owned capital in an agreed ratio.
- Retained profits of partners also a part of owned capital.
- Partnership firms can also raise loans from commercial banks and financial institutions.
- Partners also advance loans to the firm
- The firm can buy raw materials on installment/hire purchase basis.
- Can take short term credit from suppliers if needed
- Joint stock company and capital requirement- It requires a large amount of capital.
- A Public Company can raise huge capital through issue of shares.
- Other than share capital retained profits can be utilised in the form of reserves.
- Raise borrowed capital through debentures and loans.
- Long term loans can be obtained from financial institutions and short term loans are available from commercial banks.
But overall good Financial planning is required for estimating financial requirements for a business firm, choosing the source and utilising it with planning matters a lot.
