Sources of Finance

Internal Accruals::The Internal accruals of a firm consists of depreciation charge & retained earnings. Equity Capital:It represents ownership capital as equity shareholders collectively own the company. Preference Share Capital:It represents a hybrid form of financing it partakes some characteristics of equity and some attributes of debentures. Debentures:debenture holders are the creditors of the company .The obligation of a company toward its debenture holders is similar to that of borrower who promises to pay interest and principal at specified times.

Innovation in Debentures

Deep Discount bonds:A deep discount bond does not carry any coupon rate but is issued at a steep discount over its face value. Convertible Debentures:A convertible debenture is a debenture that is convertible partially or wholly into equity shares. Floating rate Bonds:Floating rate bonds earn an interest rate that is linked to a benchmark rate such as the treasury bill interest rate. Secured Premium Notes:In 1992,the Tata Iron & steel company limited issued secured premium notes of Rs.300 each .The principal amount of SPN is to be repaid in four equal instalments of Rs.75 each from the end of fourth year to the end of seventh year ,together with an equivalent additional amount of Rs.75 each instalment. Indexed Bonds:It consists of two parts.The first part represents a fixed amount and second part represents a variable component whose value is dependent on some index.

Methods of offering
Public Offering:A public offering or public issue involves sale of securities to the members of the public. Initial Public Offering:The first public offering of equity shares of a company ,which is followed by a listing of its shares on the stock market ,is called IPO. The IPO process: a) hiring the merchant bankers b)due diligence and prospectus preparation c)marketing d)subscription & allotment Seasoned Equity offering:As company need more finances ,they are likely to make further trips to the capital market with seasoned equity offerings,also called secondary offerings. Bond offering Rights Issue:A right issue involves selling securities in the primary market by issuing rights to the existing shareholders. Private Placement: Preferential Allotment

Term Loans
Firms obtain long tem debt mainly by raising term loans or issuing debentures. Term loans also referred as term finance, represent a sources of debt finance which is generally repayable in less than 10 years.

Working capital advances

Important sources for financing current assets. Form of bank finance: Cash credit, loans,discount of bills, letter of credit

Miscellaneous sources
Hire purchase finance Factoring Securitization Deferred credit Comercial paper

Venture capital
A young company that is not ready to tap the public financial market may seek venture capital

Raising capital in International Market

Eurocurrency loans Eurocurrency bonds GDR