Entrepreneurship development

2. Capital structure is the particular combination
of debt and equity used by a company to
finance its overall operations and growth.
Equity capital arises from ownership shares in
a company and claims to its future cash flows
and profits. Debt comes in the form of bond
issues or loans, while equity may come in the
form of common stock, preferred stock and
retained earnings. Short-term debt is also
considered to be part of the capital structure.

3.  A firm having a sound capital structure has a
higher chance of increasing the market price of the
shares and securities that it possesses. It will lead
to a higher valuation in the market.
 A good capital structure ensures that the available
funds are used effectively. It prevents over or
under capitalization.
 It helps the company in increasing its profits in the
form of higher returns to stakeholders.
 A proper capital structure helps in maximizing
shareholder’s capital while minimizing the overall
cost of the capital.
 A good capital structure provides firms with the
flexibility of increasing or decreasing the debt
capital as per the situation.

4.  Cost of capital
 Degree of control
 Trading on equity
 Government policies

5.  Business finance is the funds required to establish,
operate business activities, and expand in the
future. Funds are specifically required various
purchase type of tangible assets such as furniture,
machinery, buildings, offices, factories, or
intangible assets like patents, technical expertise,
and trademarks, etc.
 Apart from the assets mentioned above, other
things that require funding are the day-to-day
operational activities of a business. This activity
includes purchasing raw materials, paying salaries,
bills, collecting money from clients, etc. It is
essential to have sufficient amount of money to
survive and grow the business.

6. 1. Based on Period – The period basis is further divided
into three dub-division.
 Long Term Source of Finance – This long term fund is
utilized for more than five years. The fund is arranged
through preference and equity shares and debentures
etc. and is accumulated from the capital market.
 Medium Term Source of Finance – These are short
term funds that last more than one year but less than
five years. The source includes borrowings from a
public deposit, commercial banks, commercial paper,
loans from a financial institute, and lease financing, etc.
 Short Term Source of Finance – These are funds just
required for a year. Working Capital Loans from
Commercial bank and trade credit etc. are a few
examples of these sources.

7.  2. Based on Ownership – These sources of finance are
divided into two categories.
 Owner’s Fund – This fund is financed by the company
owners, also known as owner’s capital. The capital is
raised by issuing preference shares, retained earnings,
equity shares, etc. These are for long term capital funds
which form a base for owners to obtain their right to
control the firm’s management and operations.
 Borrowed Funds – These are the funds accumulated
with the help of borrowings or loans for a particular
period of time. This source of fund is the most common
and popular amongst the businesses. For example, loans
from commercial banks and other financial institutions.

8. 3. Based on Generation – This source of income is
categorized into two divisions.
 Internal Sources – The owners generated the
funds within the organization. The example for
this reference includes selling off assets and
retained earnings, etc.
 External Source – The fund is arranged from
outside the business. For instance, issuance of
equity shares to public, debentures,
commercial banks loan, etc.

9.  Banks have immense monetary assets and
subsequently are dominant players in all sectors of
financial markets like credit, cash, securities, foreign
exchange and derivatives. Commercial banks have a
critical part in the general financial position of the
economy as they give assets to various purposes and
additionally for various durations. A rate of premium
is charged by banks for the loan.
 Commercial banks give loans to organizations in either
cash credits, overdrafts, term loans,
purchase/discounting of bills, or issue of letter of
credit. Banks help enterprises by providing loans to
produce goods and contribute towards industrial
growth and generate employment opportunities.

10.  Technically, loans given by banks cannot be a
permanent source of funds for the
organizations as it has an interest rate and loan
must be repaid within a specific period
allotted. Before a loan is sanctioned by a bank,
the borrowing party must provide some
security. Banks also provide other services like
merchant banking, corporate advisory services,
portfolio management services etc.

11.  Venture capital (VC) is a form of private equity
and a type of financing that investors provide to
startup companies and small businesses that are
believed to have long-term growth potential.
Venture capital generally comes from well-off
investors, investment banks, and any other
financial institutions.
 However, it does not always take a monetary form;
it can also be provided in the form of technical or
managerial expertise. Venture capital is typically
allocated to small companies with exceptional
growth potential, or to companies that have grown
quickly and appear poised to continue to expand.

12.  Though it can be risky for investors who put
up funds, the potential for above-average
returns is an attractive payoff. For new
companies or ventures that have a limited
operating history (under two years), venture
capital is increasingly becoming a popular—
even essential—source for raising money,
especially if they lack access to capital markets,
bank loans, or other debt instruments. The
main downside is that the investors usually get
equity in the company, and, thus, a say in
company decisions.

13.  Venture capital financing is funding provided
to companies and entrepreneurs. It can be
provided at different stages of their evolution,
although it often involves early and seed round
funding.
 Venture capital funds manage pooled
investments in high-growth opportunities in
startups and other early-stage firms and are
typically only open to accredited investors.
 Venture capital has evolved from a niche
activity at the end of the Second World War
into a sophisticated industry with multiple
players that play an important role in spurring
innovation.

14.  Industrial Development Bank of India (IDBI)
 Industrial Finance Corporation of India (IFCI)
 Small Industries Development Bank of India
(SIDBI)
 National Small Industries Corporation Ltd (NSIC)
 State Small Industries Corporation (SSIC)
 Regional Rural Banks (RRBs)
 State Financial Corporation’s (SFCs)
 State Industrial Development Corporations
(SIDCs)
 Cooperative Banks and Gramin Banks

15.  Small Scale Industries Board (SSIB)
 Small Industries Development Organization
(SIDO)
 National Small Industries Corporation (NSIC)
 Small Industries Service Institutes (SISIS)
 Specialized Institutions
 State Directorate of Industries
 State Small Industries Development
Corporations (SSIDCs)
 Industrial Estates
 District Industries Centers (DICs)

16.  Technical Consultancy Organizations (TCOS)
 Commercial Banks
 State Financial Corporations
 Small Industries Development Bank of India
(SIDBI)
 National Bank for Agriculture and Rural
Development (NABARD)
 Entrepreneurial Guidance Bureau (EGB)
 Khadi and Village Industries Commission (KVIC)
 Small Industry Extension Training Institute
(SIETI)
 Small Industry Development Corporation
(SIDCO).

17.  This is the financial and promotional assistance
provided by the government to the industries
for boosting up industrial development in all
regions particularly in backward areas.
Incentives include concessions, subsidies, and
bounties. ‘Subsidy’ denotes a single lump-sum
that is given by a government to an
entrepreneur to cover the cost.

18.  To Generate More Employment and Remove
Unemployment
 To Promote Entrepreneurship
 To Remove Regional Disparities in
Development
 To Provide Competitive Strength, Survival,
and Growth

19.  Subsidies may lead to inefficiency in the long run.
 Subsidies once introduced are difficult to withdraw.
 The administrative procedure must be effective.
 A subsidy may remain unutilized.
 The quantum of subsidy should be adequate to
produce the desired results.
 The target groups to whom the subsidy is to benefit
should be clearly determined.
 If the administration is inefficient or corrupt, the
subsidy will not produce the desired results.
 It is very difficult to measure the impact of subsidies.
 The cost of administering a subsidy should be
considered.
 The subsidy scheme should be communicated to
prospective beneficiaries.