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What are Sources of Finance | Where Does Business Finance Come From?

Sources of Finance is a term used to describe the various methods of obtaining funding for a business. Such as bank loans, venture capital, equity investments, and government grants. It also refers to the methods of managing and investing funds.


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Personal investment

Businesses can access finance through personal investment from the owners or family members. This can include putting personal savings into the business or using personal assets as collateral for a loan. For example, a small business owner starts a new clothing line and uses their personal savings to buy the initial inventory and pay for the first month’s rent.



Love money

Some businesses access to finance through “love money” from friends and family members who believe in the business and are willing to invest money. For example, a friend of a new restaurant owner believes in the restaurant’s potential. And agrees to invest Rs50,000 to help with initial costs such as equipment and staff.

Venture capital

Businesses can access finance through venture capital firms. Which provides funding to startups and early-stage companies in exchange for equity ownership. For example, a tech startup developing a new software secures Rs 500,000 from a venture capital firm in exchange for a 20% equity stake in the company.



Angel investors

Like venture capital, businesses can access finance through angel investors who are high-net-worth individuals who provide funding to startups in exchange for equity ownership For example, an early-stage biotech company receives a Rs 250,000 investment from an angel investor who will also serve as a mentor and advisor to the company.



Crowdfunding

Businesses can access finance through crowdfunding platforms, which allow them to raise money from a large number of people, via the internet. For example, a new board game designer creates a Kickstarter campaign to raise Rs 20,000 to manufacture and distribute their new game.



Business incubators

Some businesses have access to finance through business incubators, which provide funding, mentorship, and resources to help startups get off the ground. For example, a new app development company joins a business incubator program, which provides them with office space, mentorship, and Rs 50,000 in funding to help them get their app to market.



Grants and incentives from the government

Some governments provide subsidies and incentives to businesses in specific industries or that meet certain criteria. For example, a renewable energy company receives a Rs 100,000 grant from the government to help with the development of its new solar panel technology.



Debt financing

Businesses can access finance through debt financing, which includes loans, lines of credit, and bonds. For example, a construction company takes out a Rs 500,000 loan from a bank. To buy new equipment and materials for a large-scale building project.



Equity financing

Businesses can access finance through equity financing, which includes issuing shares of stock to investors in exchange for money. For example, a growing e-commerce company raises Rs 1,000,000 by issuing new shares of stock to investors.



Bank lending

Businesses can access finance through bank lending, which includes secured loans (where the bank takes collateral) and unsecured loans (where the bank does not take collateral). For example, a small retail store takes out a secured loan from a bank using its inventory as collateral.



Leasing

Businesses can access finance through leasing, which allows them to get equipment or vehicles by renting them rather than buying them. For example, a delivery company leases a caravan of new vehicles to meet the increasing demand for their services, instead of purchasing the vehicles outright.



Business alliances

Businesses can access finance through strategic business partnerships, where two or more companies join together to share resources, knowledge, and funding to achieve a common goal. For example, two competing coffee shops join together to share resources and open a new location. With each business investing an equal amount of money in the new venture.



Venture capital

Businesses can access finance through venture capital firms, which provide funding to startups and early-stage companies in exchange for equity ownership. For example, a virtual reality gaming startup secures Rs 1 Million from a venture capital firm in exchange for a 15% equity stake in the company.

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