Financing the new enterprise

Jun 18th, 2015
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One of the primary goals of starting a business is to make money. However, it takes an undeniable amount of capital in order to properly launch and sustain a business. This amount of money for a given venture has to do with the unique goals and needs of the entrepreneur.

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1. IntroductionFinance is a crucial ingredient for economic growth. The key objective of India's economic reforms initiated in the early 1990s was to accelerate growth. The reform process of the 1990s did help to accelerate overall economic growth over that of the 1980s, but only marginally (RBI, 2003).1 Real gross domestic product (GDP) grew at 5.9 per cent during the reform period (1992-93 to 2002-03), higher than that of 5.6 per cent in the pre-reform period (1981-82 to 1990-91). Growth in both industry and agriculture has been slow after the initial burst in the 1990s, although growth in the tertiary sector has accelerated somewhat.1.1 Framework for Corporate FinancingTo set the stage, let me start with the basic framework of corporate financing. Corporate entities raise capital from either a) internal sources, essentially retained profits, or b) external sources. External funds are accessed from sources outside the firm through the issue of equity capital and debt instruments. Equity capital can be raised from the firm's promoters or the capital market that taps institutional investors, mutual funds and retail investors. Debt can be raised through floatation of corporate bonds or borrowing from banks and non-bank financial intermediaries. An important aspect of the growth process that has been widely discussed in recent times is the type of the financial system that is most conductive to growth. Seen from this standpoint, most of the systems of industrial finance

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