Page 145 - DMGT310_ENTREPRENEURSHIP_AND_SMALL_BUSINESS_MANAGEMENT

Entrepreneurship and Small Business Management

Notes So, persons desirous of becoming owner of an enterprise can purchase in their names. The
capital raised by sale of shares is called the share capital.
Whenever an entrepreneur intends to finance from market, equity financing is a common method.
Equity means capital which is invested by the owner or owners in the business and on permanent
basis, it is a risk-full investment. Equity or ownership capital is the capital supplied by owner in
single ownership business or by owners in partnership business. And in case of private companies,
the entrepreneurs and his relatives and friends supply capital and in case of public companies,
capital is procured by selling shares to the public. This equity capital or ownership capital is
supplied by equity shareholders. The various methods of equity financing are:

Entrepreneur’s personal savings and assets.
Loans taken from relatives and friends.
Personal loan taken from indigenous money lender.

Financing through sale of shares.
Ordinary or equity shares.

9.4.2 Debt Financing

In order to raise more capital, the enterprise procures capital by sale of debentures. A debenture
is an acknowledgment of a debt under the seal of an organization. Those, who purchase
debentures are called the debenture-holders. The debenture-holders cannot become the owners
of the enterprise but be recognized as its creditors.
Debt financing refers to such scheme of financing by which capital is raised through the issue of
bonds, debentures and mortgages. There are several important ways to obtain debt financing,
such as money raised through the sale of bonds, debentures and commercial papers. Small
enterprises have fewer choices than large firms for obtaining debt financing. These enterprises
are limited by their size. They are local enterprises with small inventories or markets that
provide few assets for collateralizing loans. Small entrepreneurial ventures created with the
intent to grow are still in their development stages and are risky. They have not yet established
their level of performance or asset strength to underwrite substantial debt.

Self Assessment

Fill in the blanks:

13. Whenever an entrepreneur intends to finance from market, …………. financing is a common
method.
14. This equity capital or …………………. capital is supplied by equity shareholders.

15. A ………………... is an acknowledgment of a debt under the seal of an organization.
16. Small enterprises have fewer choices than large firms for obtaining ………… financing.

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