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SAI INTERNATIONAL SCHOOL
CLASS-XI

Sub: Business Studies
Chapter 7: Sources of Business Finance
Topic: Borrowed Funds & Debentures

(LESSON NOTES - 34)
Borrowed Funds:

Borrowed funds refer to the funds raised with the help of loans or borrowings. This is the most
common type of source of funds and is used the majority of the time. The sources for raising
borrowed funds include loans from commercial banks, loans from financial institutions, issue of
debentures, public deposits and trade credit.

These sources provide funds for a specific period, on certain terms and conditions and have to
repay the loan after the expiry of that period with interest. A fixed rate of interest is paid by the
borrowers on such loans. Often it does put a lot of burden on the business as payment of interest
is to be made even when the earnings are low or when the loss is incurred. These institutions
don’t take into consideration the activities of business after the loan is given. Generally,
borrowed funds are provided on the security of some assets of the borrower.