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SAI INTERNATIONAL SCHOOL

CLASSS XI

SUBJECT: BUSINESS STUDIES

CHAPTER -7, Sources of business finance

Topics: Financial Institutions, Commercial Bank, Public Deposits,

Commercial Paper

(LESSON NOTES -36)

Financial Institutions

 The government has established a number of financial institutions all
over the country to provide finance to business organizations.
 These institutions are established by the central as well as state
governments. They provide both owned capital and loan capital for long
and medium term requirements and supplement the traditional financial
agencies like commercial banks.
 As these institutions aim at promoting the industrial development of a
country, these are also called ‘development banks’. In addition to
providing financial assistance, these institutions also conduct market
surveys and provide technical assistance and managerial services to
people who run the enterprises.
 This source of financing is considered suitable when large funds for
longer duration are required for expansion, reorganization and
modernization of an enterprise.

Merits

i. Financial institutions provide long-term finance, which are not
provided by commercial banks;
ii. Besides providing funds, many of these institutions provide
financial, managerial and technical advice and consultancy to
business firms;
iii. Obtaining loan from financial institutions increases the goodwill of
the borrowing company in the capital market. Consequently, such a
company can raise funds easily from other sources as well;