On the basis of ownership, the sources of finance can be classified into two parts :
1. Owner's funds.
2. Borrowed funds.
Owner's funds :
(a) The funds provided by the owner of an enterprise are known as owner's funds.
(b) These funds remain invested in the business for a longer period of time and are not refunded during the lifetime of the business.
(c) The owners have control over the working of the
company and are paid dividend after the payment of dividend to preference shares.
(d) For example, equity shares, retained earnings, etc.
(a) The funds raised through loans or borrowings are known as borrowed funds.
(b) It is a combination of funds that are raised either by the way of credit or loan.
(c) They are permitted to fixed amount of interest.
(d) Borrowed funds are generally raised by issuing debentures through credit or loans. It is also termed as debt financing.