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CAPITAL - FIXED AND WORKING Business finance refers to the money and credit employed in business firms. 2.2 IMPORTANCE OF FINANCE FOR BUSINESS Finance is the lifeblood of business. Adequate finance provides the following benefits to a business concern:1. The firm can meet its liabilities in time. Prompt payment of debts helps in raising its credit-standing. As a result, the firm can easily borrow funds as and when necessary. 2. The firm can take advantage of business opportunities. For example, it can buy materials in bulk at a low price. 3. The firm can carry on its business smoothly, and without any interruptions. 4. The firm can replace its plant and machinery in time, thereby improving the efficiency of its operations. 5. The firm can face recession, trade cycles, and other crises more easily and confidently. 6. An enterprise with adequate funds can pay wages and salaries in time and spend on the welfare of employees. These help in attracting, retaining and motivating talent. 2.3 SOURCES OF FINANCE FOR DIFFERENT BUSINESS FIRMS 1. Capital for sole proprietorship business: In a sole proprietorship, owned capital consists of the owner's own contribution and retained profits credited to his capital account at the end of each financial year. He may also borrow money from banks and financial institutions. Long term loans for purchase of fixed assets are available from State Financial Corporations and other financial institutions. A sole proprietor may also buy raw materials and finished goods on credit from the suppliers. 2. Capital for partnership firm: The owned capital is contributed by the partners in an agreed ratio. Retained profits credited to the accounts of partners also constitute a part of owned capital. A partnership firm can also raise loans from commercial banks and financial institutions. Sometimes, partners also advance loans to the firm. It can obtain short-term credit from suppliers of raw materials and finished goods. 3. Capital for joint stock company
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