Key Factors which Affects the Choice of Sources of Funds

Key Factors which Affects the Choice of Sources of Funds

Any type of business plays an important role in the growth of a country; because it always deals with the goods and services thereby it satisfies the need of the society. A business cannot function properly without enough money or finance, the life of any business is always money. If a new entrant decides to start a business, the initial capital required, contributed by him would not be sufficient for the smooth running of the business, therefore, he should find different sources of finance such as internal, external to meet the financial requirements of the business. To know more financial sources read a review on BTC profit. The entrepreneur should do a clear assessment of the needs of the finance which would be enough for the running of the business organization.

What are the Important Factors Affecting the Choice of the Sources of Funds?

  • Cost

A business needs a lot of finance to run successfully. There are mainly two types of expenditure such as of procurement and of utilizing funds for business. So before taking a decision about the sources of funds needed for business these two cost of funds are to be considered.

  • The Stability of Finance and Operations

For choosing, the source of fund, the financial stability of business plays an important role. The business should be in a sound financial position so as to repay borrowed financial sources otherwise this will become a financial burden to the organization.

  • Time Period

Every business has different types of needs, so the plans of the business should always consider the time period for which funds are required. For instance, some business has short-term financial needs so they can find their financial sources with low-interest rates like trade credit or commercial paper and for long term financial needs issuance of shares or debentures can be done.

  • Risks

Every business is associated with many types of risks. The business owner should evaluate the risks involved especially in the sources of finance. For example, always try to select least risk funds such as share capital because it has to be repaid only at the time of winding up.

  • Control

Funds like the issue of equity shares may affect the control and power of the firm because the shareholders have voting rights and other rights. So keep things in mind before choosing these types of sources.

 

 

  • Credit Worthiness of the Market

The issue of secured debentures affect the interest of unsecured creditors of the business firm thereby they don’t like to extend further loans as credit.

  • Flexibility of Sources

People always like to select comparatively easily accessible funds because they don’t like detailed documentation and investigation for borrowing funds. So they prefer choices of funds other than from the banks or other financial institutions.