Sources of Business Finance
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- My company Maglex has finally been established. Now I need to arrange funds for it...
- I recently read about public deposits, it's simple, mortgage-free, and doesn't dilute the control of the company!
- Hey Ruby! Can you please tell me a few things about Public Deposits?
- Hello Adam! Public deposits are short-term and medium-term sources of finance. These are deposits raised directly from the public. Their cost is lower than the cost of borrowings from banks
- That sounds amazing!! I can use it to fund my new business!
- I won't recommend that at all. As a new company, Maglex does not have enough reputation and goodwill for the public to trust and deposit money in it.
- Now which source of finance should I select?
- Adam, don't be sad. You can issue debentures. A debenture is an acknowledgment that the company has borrowed a certain amount of money, which it promises to repay at a future date. They do not participate in the profits of the company, and are less costly as compared to equity and preference capital
- Thanks a ton, Ruby! I'll think over it and make a decision!
- Do keep in mind that the issue of debentures is suitable in the situation when the sales and earnings are relatively stable. It also reduces the borrowing capacity of the company and puts a permanent burden on its earnings. Best of luck to you and Maglex!
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