There are two main sources of financing a project i.e.

  1. Own funds and 
  2. Loan funds. 

The cost of a project depends on the nature of project i.e. a project set up for the first time, expansion project, modernization project, diversification project, take over project joint venture project, merger project etc.  

The correct estimation of capital costs and working capital requirements is very necessary otherwise the project face serious problems and ultimately the project may remain incomplete or the project may take more time for want of funds. The capital cost may consist of items like land and site development, building and civil works, plant and machinery, technical know how fees, miscellaneous fixed assets, interest, provisions for contingencies etc. Similarly, working capital may consists of items like raw material, work in progress, finished products, debtors/receivables, power, fuel, salary & wages, taxes, duties, overhead expenses and contingencies.

Main sources of finance:

Own funds 

  • Share capital 
    • Equity and
    • Preference share capital 
  • Premium on issue of share capital 
  • Reserves and surplus including retained earnings
  • Subsidy received from central/state governments

Loan funds or debt

  • Debentures – convertible, non-convertible a partly convertible debenture 
  • Term loans or long term loans from all India level development financing institutions AIDFI‟s and state level development financing institutions.
  • Unsecured loans – Like commercial paper
  • Deferred credit- receiving goods, plan & machinery from suppliers on credit and payment in installments.

financial management

May 23, 2017