Question

List sources of raising long-term and short-term finance.

Answer 1

The following are some of the sources of long-term funds.

(a) Equity shares: These represent the ownership capital of a company. The holders of such shares enjoy a say in the management and gain higher returns when the company earns higher profits.

(b) Retained earnings: These are the undistributed profits of a business that are retained in the business for future use.

(c) Debentures: Debentures are financial instruments used by companies to raise long-term debt capital. They carry a fixed rate of return and specify a time for repayment.

The following are some of the sources of short-term funds.

(a) Trade credit: It is the amount of credit that is extended by the supplier to the purchaser. It facilitates the purchase of goods on credit.

(b) Banks: Business enterprises can also obtain short-term funds from banks.

(c) Commercial paper: These are credit instruments used by creditworthy firms to obtain short-term finance for their business.