Running an Industrial unit involves dealing in commodities, goods, cash and various money instruments. To acquire these, the corporates need to secure finance of different types. The requirements of the corporates being of two types, namely, short-term and long-term, the nature of finance required also is of same two types. Securing both types of funds required by the corporate and their utilisation to an optimal extent to ensure that the cost of such funds is minimised are the activities which together constitute Corporate Finance.
Corporates are able to generate only a minor portion (25-35%) of these finances internally, the rest has to come from external sources, if a corporate has to grow and remain profitable. Corporate Sector, therefore, has to depend heavily on the market sources.
The instruments of raising funds from the market are many and varied and the market segments where these are floated are as many. While the initial issues (first and subsequent) are floated in the issue market, old securities (issues floated earlier) are traded in the secondary market segment of the capital markets. Capital markets, are therefore, the major sources of funds for the corporate sector. However, markets are tough taskmasters and only those corporates, which perform well, can hope to secure funds from the market. Markets use a variety of parameters and tools including ratio analysis to gauze the performance of a corporate. Another equally important source of funds is the borrowing from financial intermediaries i.e. financial Institution and Commercial Banks. The methods of raising funds may vary from unit to unit and industry to industry, but broadly, the sources of borrowing for corporate units are:
Deposits from general public
Shares to existing or new shareholders. (ORDINARY SHARES & PREFERENCE SHARES)
Another very important source of funds, which is gradually opening up for Indian Corporates is the Global Market. Not only do the corporates access Foreign Exchange through this market (loans in foreign currencies are also available from term-lending institutions like the IDBI, ICICI, IFCI, and commercial banks), but more important, they tap the global pool of savings. Lately, this source of funding has been increasing in importance.
NEED AND SOURCES OF FINANCE
To look at the areas where corporates require finance: Click below
Medium and long-term purposes
Short term purposes
Forfaiting is an export financing option.click here