Question

Go to page 578 in chapter 17, The Financial System and Issues in Financial Management.

Answer the following questions in questions for review 17-8:

Suppose that you are a business owner and you are seeking funds for expansion. From what sources could you gain the capital you need, and what are some of the characteristics of these sources? Are you limited by your form of doing business, and if so, how? How do these kinds of funding sources differ from funding sources for new equipment and short-term operating expenses?

Answer 1

Ans. Some of the Sources of Finance for Expansion of company can be as follows :

1) Retained Earnings

2) Loan from Commercial Banks

3) Loan from Financial Institutions

4) Issue of Equity Shares

5) Issue of Bonds. Etc etc.

Yes , we are limited by the form of doing business because various factors are kept in mind while deciding the proper source of finance and the form of business is one of the major factor. Sole proprietorship and partnerships cannot issue shares or debentures and would have to be dependent on other sources whereas different sources would be relied upon by companies and different for Cooperative Societies etc. The type of business also needs to be considered because it helps us to know whether we want funds for Long period or short period , we want to delegate authority or not etc.

For expansion , we would certainly need long term funds like : Shares , Debentures , Bonds , Retained Earnings etc but for funding equipments and short term operating expenses , we can go for Short Term or Medium Term funds like : Trade Credit , Factoring , Short Term loan from Commercial banks and Financial Institutions.

Best of Luck !! !!