Finance is the life-blood of any business. Without finance, no business can be done. In order to do business one should have capital. Now, this capital can be invested from the funds available with the person willing to start a business or can be borrowed. No business can function in an effective manner without having sufficient funds and hence the requirement of borrowed capital becomes imperative.
Business can be started in various forms such as follows:
- Proprietorship – where the entire capital is brought in by the Proprietor himself
- Partnership- where two or more persons join together and do business and invest the capital equally or in proportion, they are able to invest
- Company – Private Ltd Company where the shares of the company are invested by the shareholders of the company but is limited to a particular group of closely held persons or family members
- Company- Public Limited Company where the shares are offered to the public and money is brought in
How each Business entity differs
In case of a Proprietorship concern, the legal formalities to be complied with are very little whereas in the case of a partnership firm the legal formalities are a little more. This becomes more and more complicated in the case of a Private Limited Companies and in case of a Limited Company it is even more. However, the ability to borrow capital will be less in case of Proprietorship whereas in case of Partnership will be a little more and that of Companies would be even better as this will have more stable in law.See herefor more information.
Apart from the money that is invested by the owner of the business which may become insufficient, the necessity to borrow from financial institutions will become imperative in order to run the business. For obtaining finance from financial institutions they have to be given various details of the business such as
- Owners details – His id proof and address proof, PAN Card, IEC in case of export/import, MSME certificate if applicable
- Company’s Profit & Loss Account & Balance- Sheet audited
- IT Returns
- Due diligence
- Market study
- Reasons for getting finance – such as business expansion, machinery purchase etc.
- Surety and collateral security if required
Banks will conduct a study of the organization based on the above-given details/ documentsand will come to the conclusion of whether they would be able to repay the borrowed amount and based on which the Bank will Sanction the Loan.