1. Owner’s Funds: Owner’s funds mean funds which are provided by the owner of the enterprises who may be an individual, or partners or shareholders of a company. The profits reinvested in the business (ploughing back of profit or retained earnings) come under owner’s funds.
These funds are not required to be refunded during the life time of business enterprise. It provides the owner the right to control the management of the enterprise.
2. Borrowed Funds: The term ‘borrowed funds’ denotes the funds raised through loans or borrowings. For example debentures, loans from banks and financial institutions, public deposits, trade credit, lease financing, commercial papers, factoring, etc., represent borrowed funds.
These borrowed sources of funds provide specific period before which the fund is to be returned. Borrower is under legal obligation to pay interest at given rate at regular intervals to the lender. Generally borrowed funds are obtained on the security of certain assets like bonds, land, building, stock, vehicles, machinery, documents of title to the goods, and the like.
