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Types of Finance

Definition: Finance refers to funds required for setting up, running, and expanding a business.

Types:

  1. Personal Finance: Money from personal savings or assets.

  2. Corporate Finance: Funds raised by businesses through equity, debt, or retained earnings.

  3. Public Finance: Government funds and subsidies.

  4. Debt Finance: Borrowed funds with an obligation to repay (e.g., bank loans).

  5. Equity Finance: Capital raised by selling ownership stakes (shares).

  6. Venture Capital: Equity funding from investors for high-growth startups.

  7. Bootstrap Finance: Using own money or operating revenues to fund growth.

Sources of Finance

  1. Personal Savings: Entrepreneur’s own funds.

  2. Family and Friends: Informal loans or investments.

  3. Bank Loans: Formal lending with interest and repayment terms.

  4. Venture Capitalists (VC): Provide equity funding and mentorship in exchange for ownership.

  5. Crowdfunding: Raising small amounts from many people via online platforms.

  6. Angel Investors: Wealthy individuals investing in early-stage startups.

  7. Government Grants and Schemes: Subsidies and soft loans for entrepreneurs.

Venture Capital (VC)

Definition: Investment funds committed to startups and small businesses with long-term growth potential.

Features:

  • Provides equity capital.

  • High risk but offers mentoring and networking.

  • Typically for innovative and scalable businesses.

Example VC Firms in India: Sequoia Capital, Accel, Nexus Venture Partners.​

Startup India Program

  • Launched in January 2016 to promote innovation and entrepreneurship.

  • Provides funding support, tax exemptions, easier compliance, incubation centers.

  • Startup eligibility: Less than 10 years old, turnover under ₹100 crore.

  • Offers government-backed Fund of Funds for startups.

Make in India Program

  • Focuses on boosting manufacturing and job creation.

  • Attracts foreign investment and supports startups in manufacturing.

  • Provides infrastructure and funding assistance.

  • Linked with schemes like Stand-Up India and MSME support.​

Pradhan Mantri Mudra Yojana (MUDRA)

  • Launched in April 2015 for funding non-corporate, non-farm small/micro enterprises.

  • Provides loans up to ₹10 lakh without collateral.

  • Categorizes loans as:

    • Shishu: up to ₹50,000

    • Kishore: ₹50,001 to ₹5 lakh

    • Tarun: ₹5 lakh to ₹10 lakh

  • Available through banks, NBFCs, and microfinance institutions.

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