Sources
of Business Finance
ACCORDING TO TIME-PERIOD:
Sources of financing a
business are classified based on the time period are commonly classified into
following three:
Long Term Sources of
Finance: Long
term financing means capital requirements for a period of more than 5
years to 10, 15, 20 years or may be more depending on other factors.
Long
term financing sources can be in form of any of them:
o Share Capital or Equity
Shares
o Preference Capital or
Preference Shares
o Retained Earnings or
Internal Accruals
o Debenture / Bonds
o Term Loans from Financial
Institutes, Government, and Commercial Banks
o Venture Funding
o Asset Securitization
o International Financing by
way of Euro Issue, Foreign Currency Loans, ADR, GDR etc.
Medium
Term Sources of Finance: Medium term financing means financing for a period
between 3 to 5 years. Medium term financing is used generally for two
reasons.
Medium term financing sources can in the form of one of
them:
o Preference Capital or
Preference Shares
o Debenture (
)/
Bonds
o Medium Term Loans from
§ Financial Institutes
§ Government, and
§ Commercial Banks
o Lease Finance
o Hire Purchase Finance
Short
Term Sources of Finance: Short term financing means financing for
period of less than 1 year. Short term financing is also named as working
capital financing. Short term finances are available in the form of:
o
Trade
Credit
o Short Term Loans like
Working Capital Loans from Commercial Banks
o Fixed Deposits for a period
of 1 year or less
o Advances received from
customers
o Creditors
o Payables
o Factoring Services
o Bill Discounting etc.
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