Sources of Finance

What are Sources of Finance – Finance

Sources of Finance

Sources of finance mean the ways in which for mobilizing numerous terms of finance to the economic concern. Sources of finance state that, however, the businesses square measure mobilizing finance for her necessities. The businesses belonging to the prevailing or the new requirements the total quantity of finance to satisfy the semi-permanent and short necessities like getting of mounted assets, construction of office blocks, purchase of raw materials, and day-after-day expenses.

Sources of financing may be classified under various categories according to the following important heads:

  1. Based on the Period

Sources of Financing may be classified under various categories based on the period. Long-term sources: Finance is also mobilized by semi-permanent or short. When the finance is mobilized with a large amount and the repayable over the period will be more than five years, it may be considered a long-term source.

Share capital, issue of debenture, semipermanent loans from money establishments and industrial banks come back beneath this sort of supply of finance. semi-permanent supply of finance must meet the cost of corporations like the acquisition of mounted assets, land, buildings, etc.

Long-term sources of finance include:

    • Equity Shares
    • Preference Shares
    • Debenture
    • Long-term Loans
    • Fixed Deposits

Short-term sources:

Apart from the semipermanent supply of finance, corporations will generate finance with the assistance of short sources like loans and advances from industrial banks, moneylenders, etc. A short-term source of finance needs to meet the operational expenditure of the business concern.

Short-term sources of finance include:

    • Bank Credit
    • Customer Advances
    • Trade Credit
    • Factoring
    • Public Deposits
    • Money Market Instruments
  1. Based on Ownership

Sources of Financing may be classified under various categories based on the period:

An ownership source of finance includes

    • Shares capital, earnings
    • Retained earnings
    • Surplus and Profits

Borrowed capital include

    • Debenture
    • Bonds
    • Public deposits
    • Loans from Bank and Financial Institutions
  1. Based on Sources of Generation

Sources of Financing may be classified into various categories based on the period.

Internal source of finance includes

    • Retained earnings
    • Depreciation funds
    • Surplus

External sources of finance may include

    • Share capital
    • Debenture
    • Public deposits
    • Loans from Banks and Financial institutions
  1. Based on the Mode of Finance

Security finance maybe include

    • Shares capital
    • Debenture

Retained earnings may include

    • Retained earnings
    • Depreciation funds

Loan finance may include

    • Long-term loans from Financial Institutions
    • Short-term loans from Commercial banks.

The above classifications are based on nature and how finance is mobilized from various sources. But the above sources of financing can be divided into three major classifications:

●     Security Finance
●     Internal Finance
●     Loans Finance

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