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Sources of Funds
- Sources of Funds means where money is raised from to finance a business,
project, or activity.
- It can be internal (within business, like reserves, retained earnings) or
external (from banks, investors, or government).
- Used in balance sheet, CMA data, project financing, loan applications, and
subsidy claims.
In simple words: It shows how capital is raised to run or expand business.
1. Internal Sources
- Funds generated within the business.
- Retained earnings / Reserves.
- Sale of assets.
- Depreciation funds.
- Owner's contribution (capital).
2. External Sources
Funds raised from outside.
- Equity financing ? Shares, Venture Capital, Angel investors.
- Debt financing ? Term loans, Working capital loans, Debentures, Bonds.
- Government support ? Subsidies, Grants, Soft loans.
- Trade credit ? Credit from suppliers.
3. Short-term vs Long-term
- Short-term: Working capital loans, trade credit, overdraft.
- Long-term: Term loans, debentures, equity, reserves.
1. Business Identity
- PAN, GST, Udyam/MSME Certificate.
- Company Incorporation Certificate (if applicable).
2. Financial Documents
- Audited Balance Sheet, P&L (last 2 - 3 years).
- CMA Data & DPR.
- Projections & Provisional statements.
3. Loan/Investor Related
- Bank statements (6 - 12 months).
- CIBIL report / Credit rating.
- KYC of promoters (PAN, Aadhaar, Address proof).
4. Project/Asset Documents
- Land/Building documents (if collateralized).
- Machinery invoices/quotations.
- Individuals ? Eligible for personal loans, startup loans, government
schemes.
- MSMEs / Companies / Startups ? Eligible for bank loans, subsidies, equity
investment.
- Farmers / Agro Units ? Eligible for NABARD, cooperative bank loans,
subsidies.
- Large Corporates ? Eligible for bonds, debentures, equity markets.
Eligibility depends on:
- Business registration (MSME/Udyam, ROC, GST).
- Creditworthiness (CIBIL score, repayment track record).
- Financial viability of project (via DPR & CMA data).
1. Ensures Business Growth
- Adequate funding = smooth expansion and working capital.
2. Balances Risk & Return
- Mix of equity + debt reduces financial risk.
3. Improves Creditworthiness
- Well-diversified funding sources improve bank & investor trust.
4. Supports Subsidy & Govt. Benefits
- Eligible for capital subsidy, interest subsidy, startup schemes.
5. Liquidity Management
- Helps meet both short-term needs (stock, wages) & long-term needs (machinery, infrastructure).
6. Sustainability
- Prevents over-dependence on a single source of capital.
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