Borrowed funds

It is a well known fact that a business needs money in order to continue its operations. A business cannot sustain for long without funds.

Funds can be of two types namely 1. Equity funds and 2. Borrowed funds.

Borrowed funds are referred to as the funds that a business needs to borrow from outside the company in order to provide a source of capital for the business. These funds are different from the capital owned by the company which are called equity funds.

Source of Borrowed Funds

The sources of borrowed funds include finance that is obtained from commercial banks, financial institutions, finance that is raised from debenture holders and public deposits.

Features of Borrowed Funds

Following are some of the features of borrowed funds

1. Borrowed funds are raised by business for certain fixed time periods, it can be short-term, medium-term or long-term, based on the requirement of the business.

2. Borrowed funds can be obtained against securities of the fixed assets of the business.

3. Businesses need to make regular interest payment for the loans obtained as funds as well as need to pay the principal amount after a fixed time.

4.The security holders of the borrowed funds do not have control over the business activities of the firm. They can however sue the firm in case there is default in payment of loan.

This concludes the topic of Borrowed funds, which is an important topic of Business Studies for Commerce students. For more such interesting articles, stay tuned to BYJU’S.

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