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Resource Mobilization — Entrepreneurship STD 12 Commerce — Question

CBSE BoardEnglish MediumSTD 12 CommerceEntrepreneurshipResource Mobilization3 Marks
Question
When is it appropriate to use financial institutions as a source of financing?
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Answer

Financing, an enterprise-whether large or small-is a critical element for success in business. Financing is the use and manipulation of money. Raising money for a business is one aspect of financing. All new entrepreneurs most of the time face difficult problems to arrange start up finance. While finance is a life blood of the business and is needed throughout the life of business, the new entrepreneur faces significant difficulties in acquiring capital at start-up.
  1. The entrepreneur needs to consider all possible sources of capital and select the one that will provide the needed funds at minimal.
  2. Different sources of funds are used at various stages in the growth and development of the venture.
  3. If an entrepreneur cannot personally supply the necessary amount of money, another option is 'OTHER PEOPLE'S MONEY (OPM)'. It means before seeking outside financing; an entrepreneur should first explore all methods of internal financing and the other external financing and if it suits an entrepreneur he can go for financial institutions as a sources of financing.
  4. Institutional finance refers to institutional financing.
  5. Sources of finance to Industry, other than commercial banks. These institutions are established by the Central/ State Government, aiming
  1. Promoting the industrial development of a country.
  2. Providing both owned capital and land capital for long and medium term requirements.
  3. Supplement the traditional financial agencies like commercial banks.
  4. To encourage setting up of industries in backward areas.
  5. To provide technical assistance to & industrial units.
  6. To develop investment markets.

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