Class 12 Entrepreneurship Notes · CBSE
Sources of Finance and Capital Markets
Sources of Finance and Capital Markets — learn why finance is the elixir of every enterprise, the three questions of fund raising, internal vs external sources, and how capital markets intermediate between savers and entrepreneurs. CBSE Class 12 Entrepreneurship notes with the Twitter and Air India case studies.
Last updated: 10 Sep 2026
Notes
Finance — The Elixir of Enterprise
Business is full of surprises. As an entrepreneur, one may face situations that can catch them off guard — any situation has the potential to become either a ‘disaster’ or an ‘opportunity’. Whether running a home-based business or a mid-sized venture, the first thing required is money. One cannot imagine a world without money — everyday life and every human activity is dependent upon it. Even in a bid to minimize losses, it is essential to prepare for the “unexpected” by arranging and protecting resources.
Like a lubricant to production
Why financing is rated first
Before the first cup of chai
Eight Demands on Finance — Where the Money Goes
Right from the very beginning, i.e., conceiving an idea, finance is required to:
How much money is needed?
Three Questions Before Anything Else
Before doing anything, an entrepreneur should clearly answer the following three questions:
How much money is required? It can be estimated by developing a statement of various assets required by the enterprise.
Where will money come from? Integral to the total amount needed is deciding about its arrangement or sources.
When does the money need to be available? Timing of availability must be planned.
The three questions in action — a tiffin service
Riya plans a weekend tiffin service for working professionals. How much? ₹1,20,000 — kitchen equipment ₹60,000, licence and packaging ₹20,000, and three months of ingredients ₹40,000. Where from? ₹50,000 of her own savings and ₹70,000 from family (internal sources), plus a ₹2,00,000 bank loan later (external source).
When? The kitchen money is needed in month 1; the loan is needed only in month 6, once orders cross 50 tiffins a day. Answering all three before spending a rupee is what keeps a venture from running out of cash.
Case Study I — Twitter Tweets (The Power of Finance)
1 / 4
Think about it — the Indian parallel
Case Study II — Air India (Money is Always a Problem)
The Default
“Air India has defaulted on working capital loan interest payment of ₹200 croresdue to the financial crisis that the airline is facing,” confirmed Air India sources on 21st May 2011.
Air India had high-cost loans worth about ₹40,000 crores.
This was perhaps the first time that the national carrier defaulted on its payments to banks.
What the two cases teach together
Think about it — the same trap, one street away
A stationery shop borrows ₹2,00,000 at 12% to add a photocopy corner. That is ₹24,000 of interest every year — payable whether or not students buy anything. If sales dip and two EMIs are missed, the bank stops lending more, and the copier that was supposed to grow the shop becomes the reason it struggles.
Air India's ₹200 crore interest default on ₹40,000 crore of loans is the same story at a scale of thousands of crores.
Two Families of Sources — Internal and External
Internal sources
Referred to as owner's own money, also known as 'equity'. Particularly in the case of small entrepreneurs, the owner's money is very small.
Example
A home baker starts her kitchen with ₹40,000 of her own savings.
External sources
An overwhelming portion of money is arranged from these sources.
Example
The same baker later takes an ₹8,00,000 bank loan to buy a commercial oven.
Every source brings its own mix
Giving up a slice to grow
Case Study III — Financial gaming
The same business, two families of money — Flipkart
Flipkart's founders started with their own savings — internal. Then, round after round, they gave up slices of ownership: Accel, Tiger Global, SoftBank — external.
In 2018 Walmart bought about 77% of Flipkart for $16 billion. The founders owned far less of the company than they started with, but what remained was worth billions — that is the trade “giving up a slice to grow” makes.
Financial Intermediation — The Bridge from Savers to Ventures
At times, we have people who have money that they don't want to spend; rather, they save for future use. On the other hand, there are people who want to spend money to undertake some economic activities but don't have the required amount of finance.
How money moves: savers → capital market → entrepreneurs
Surplus units (savers)
People who have money they don't want to spend — they save for future use.
Capital markets (financial intermediary)
Play a very vital role as a financial intermediary in the transfer.
Deficit units (entrepreneurs)
People who want to spend money to undertake economic activities but don't have the required amount of finance.
Surplus units (savers)
People who have money they don't want to spend — they save for future use.
Capital markets (financial intermediary)
Play a very vital role as a financial intermediary in the transfer.
Deficit units (entrepreneurs)
People who want to spend money to undertake economic activities but don't have the required amount of finance.
Intermediation at your bank branch
Capital Markets — The Marketplace for Money Capital
The most important source
Mobilize financial resources on a nationwide scale.
Secure the required foreign capital and know-how to promote economic growth at a faster rate.
Ensure the most effective allocation of the mobilized financial resources — by directing them either to such projects which are capable of the highest yield or to the underdeveloped priority areas where there is an urgent need to promote balanced and diversified industrialization.
The needs of entrepreneurs who actually use the savings for productive purposes are varied. The capital market satisfies the tastes of savers and the needs of investors through its various financial instruments and institutions.
| Market | Nature |
|---|---|
| Primary market | New issues market |
| Secondary market | Old securities market or stock exchange |
Primary vs secondary in one line
Key Takeaways
Key Takeaways
- Finance — the funds or monetary resources needed by individuals, business houses and the government — is required right from the moment an idea is conceived, and is the most critical element for business success. So what? Your business idea is stuck without money from day one.
- Of Production, Marketing and Financing — the three most important factors for business survival — Financing is rated first, because nothing can be done without money.
- Before doing anything, an entrepreneur must answer three questions: How much money is required? Where will it come from? When does it need to be available? So what? Answer these three before approaching any investor.
- Internal sources are the owner's own money (equity) — very small for small entrepreneurs; external sources arrange the overwhelming portion of funds. So what? Don't be shy of outside money — most ventures run on it.
- Financial intermediation transfers financial resources from surplus units (savers) to deficit units (entrepreneurs); capital markets play a vital role as financial intermediary. So what? Capital markets are the bridge between savers like your parents and entrepreneurs like you.
- A capital market is an organized mechanism for the effective and smooth transfer of money capital from investors to entrepreneurs — it mobilizes resources nationwide, secures foreign capital and know-how, and directs funds to the highest-yield or priority areas.
- Entrepreneurs enter the capital market through the primary market (new issues) or the secondary market (old securities / stock exchange).