Sources of business finance can be studied under the following heads:
Short Term Finance:
Short-term finance is Required to Meet the needs of business. The current needs could include payment of taxes, salaries or salaries, repair costs, payment to creditor etc. The demand for short term finance arises because earnings and purchase payments are not perfectly same at of the time. Sales can be reduced when compared with purchases. While buys are on money sales might be on credit. So short term finance is required to match those disequilibrium.
Sources of short term finance are as follows:
(I) Bank Overdraft: Bank overdraft is quite popular source of business finance. Customer can draw on certain amount of money over and above. Thus it is more easy for the businessman to fulfill short term expenses.
(ii) Bill Discounting: Bills of exchange could be discounted at the banks. This Provides money to the holder of the invoice that may be used to finance immediate demands.
(iii) Advances from Customers: Advances are mostly demanded and obtained for the Confirmation of orders these are used as source of funding the operations required to execute the work order.
(iv) Installment Purchases: Purchasing on installation gives more time to make payments. The payments serve as a source of funding expenses that should be paid.
(v) Bill of Lading: Bill of lading and other export and import files are Used as a promise to take loan from that loan amount and banks may be utilized as finance for a brief period of time.
(vi) Financial Institutions: Different financial institutions also help businessmen to By giving loans get. Short term assistance can be arranged by certain societies for businessmen.
(vii) Trade Credit: It is the usual practice of these businessmen to Purchase raw Material, store and arranges on credit. Trades result in accounts of the business which should be paid after a certain period of time. Goods are sold on money and payment is made after 60, 30, or 90 days. This allows some freedom to businessmen in fulfilling difficulties.
Medium Term Finance:
This finance Must meet with the Medium term (1-5 years) needs of the business. Such finances are required for the balancing, modernization and replacement of plant and machinery. These are necessary for re-engineering of their organization. They aid in finishing funding projects that are medium term within time the direction. Following are the resources of medium term finance:
(i) Commercial Banks: Commercial banks are the major source of medium term finance. They supply loans for against securities that are proper. If needed, at the conclusion of conditions the loan can be re-negotiated.
(ii) Hire Purchase: Hire purchase means purchasing on installments. It allows the Business home to have the goods that were essential to be made in future in agreed installment. Obviously that a interest is charged on volume that is outstanding.
Categories: Finance
