Question

List out the various sources of financing.

Answer 1

The various sources of business finance can be classified into three categories on the basis of

(i) period basis
(ii) ownership basis
(iii) source of generation basis.

On the basis of period:

1. Short term finance
2. Medium-term finance
3. Long term finance

Sources of Short Term Finance:

1. Loans and Advances
2. Bank Overdraft
3. Discounting Bills of Exchange
4. Trade Credit
5. Pledge
6. Hypothecation
7. Mortgage
8. Loans Against the Securities
9. Clean Loan
10. Commercial Paper (CP)
11. Hire Purchase Finance
12. Factoring

Sources of Medium Term Finance:

1. Loans from Banks
2. A loan from Financial Institutions
3. Lease Financing

Sources of Long Term Finance:

1. Shares (i) Equity Shares (ii) Preference Shares
2. Debentures
3. Retained Earnings
4. Public Deposits
5. Long Term Loan from Commercial Banks
6. The Loans from Financial Institutions

On the Basis of Ownership:

1. Owner’s Funds
2. Borrowed Funds

On the Basis of Generation of Funds:

1. Internal Sources
2. External Sources