Sources of Finance for different types of business firms

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:

  1. 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
    1. 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.

    Saamra Rizvi
    Saamra Rizvi
    Saamra Rizvi is a Communication expert, and trainer. She is a CS, and Law graduate from Lucknow University. She is a speaker in ICSI (Institiute of Company secretary) . Given various soft skill session in Lucknow ITI. In the pandemic situation she also provided online skill session to various entities. She is also attached to a children educational institute and support children with her skills .

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