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Unit 9: Financial Estimates and Projections

2. The principal support for working capital is provided by ………………… banks and trade Notes
creditors.
3. Most of the ………………… incur cash losses in the initial years.

4. The ………………… money for working capital is sometimes utilised for meeting over
runs in capital cost.
5. ………………… expenses are directly related to the project implementation schedule.

9.2 Means of Finance

To meet the cost of the project the following means of finance are available:
1. Share capital
2. Term loans
3. Debenture capital

4. Deferred credit
5. Incentive sources
6. Miscellaneous sources

The means of finance in detail given below:
1. Share Capital: There are two types of share capital equity capital and preference capital.
Equity capital represents the contribution made by the owners of the business, the equity
shareholders, who enjoy the rewards and bear the risks of ownership. Equity capital being
risk capital carries no fixed rate of dividend. Preference capital represents the contribution
made by preference shareholders and the dividend paid on it is generally fixed.
2. Term Loans: Provided by financial institutions and commercial banks, term loans represent
secured borrowings which are a very important source (and sometimes, the major source)
for financing new projects as well as for the expansion, modernisation, and renovation
schemes of existing firms. There are two broad types of term loans available in India:
rupee term loans and foreign currency term loans. While the former are given for financing
land, building, civil works, indigenous plant and machinery, and so on, the latter are
provided for meeting the foreign currency expenditures towards the import of equipment
and technical know how.

3. Debenture Capital: Akin to promissory notes, debentures are instruments for raising debt
capital. There are two broad types of debentures: non-convertible debentures and
convertible debentures. Non-convertible debentures are straight debt instruments.
Typically they carry a fixed rate of interest and have a maturity period of 5 to 9 years.
Convertible debentures, as the name implies, are debentures which are convertible, wholly
or partly, into equity shares. The conversion period and price are announced in advance.
4. Deferred Credit: Many a time the suppliers of the plant and machinery offer a deferred
credit facility under which payment for the purchase of the plant and machinery can be
made over a period of time.
5. Incentive Sources: The government and its agencies may provide financial support as an
incentive to certain types of promoters or for setting up industrial units in certain locations.
These incentives may take the form of seed capital assistance (provided at a nominal rate
of interest to enable the promoter to meet his contribution to the project), or capital
subsidy (to attract industries to certain locations), or tax deferment or exemption
(particularly from sales tax) for a certain period.

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