Explain the factors which play an important role in the choice of a suitable of finance.
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Factor affecting the choice of the sources of funds are as under : 1. Cost : There are two types of cost viz. ... Financial strength and stability of operations : In the choice of source of funds business should be in a sound financial position so to be able to repay the principal amount and interest on borrowed amount.
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The right choice for source of finance is very important for ensuring effective profit and timely returns.
Explanation:
- The source from where finance is borrowed is one of the most important factors in determining the profitability of a business.
- Therefore, various factors such as the rate of interest on borrowing, complexity of the process of borrowing, reliability of the lending institution, legal procedure, etc. are to be considered while selecting a source of finance.
- A person should also decide whether the borrowing is for short duration or long duration because they also impact the source of borrowing funds.
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