Q.Why does a business need financial institutions in addition to its own owner's capital? Explain briefly.

Owner capital alone is rarely enough for a growing business, so specialised financial institutions bridge the gap. …

Very few businesses can fund their entire growth from the owner's own savings and reinvested profit alone. As a business grows, it needs increasing amounts of capital — both short-term (for stock and day-to-day running costs) and long-term (for machinery, premises, and expansion) — that quickly exceed what an individual owner can personally supply.

Financial institutions — commercial banks and specialised development/finance institutions — exist precisely to bridge this gap. They specialise in assessing the risk of lending to a business, pooling deposits from many savers to lend to many borrowers, and offering both working capital and term finance suited to a business's specific needs, something an individual owner …