Question

Write short notes on borrowed funds.

Answer 1

The term ‘borrowed funds’ denotes the funds raised through loans or borrowings. For example debentures, loans from banks and financial institutions, public deposits, trade credit, lease financing, commercial papers, factoring, etc., represent borrowed funds.

These borrowed sources of funds provide a specific period before which the fund is to be returned. The borrower is under a legal obligation to pay interest at the given rate at regular intervals to the lender. Generally borrowed funds are obtained on the security of certain assets like bonds, land, building, stock, vehicles, machinery, documents of title to the goods, and the like.