BUSINESS FINANCE 
 
Module 3 - Quarter 1 
Short Term and Long Term 
Funds 

Department of Education • Republic of the Philippines 

Business Finance
Alternative Delivery Mode
Module 3 - Quarter 1: Short Term and Long Term Funds
First Edition, 2020

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Published by the Department of Education

Secretary: Leonor Magtolis Briones, PhD
Undersecretary: ​Diosdado M. San Antonio, PhD
Assistant Secretary: ​Alma Ruby C. Torio, PhD 

   
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BUSINESS FINANCE 
Module 3 - Quarter 1
Short Term and Long Term
Funds
 
 
 
 

Department of Education ● Republic of the Philippines

TABLE OF CONTENTS

Page No.

Cover page III

Table of Contents V

3 
 
Overview VI
General Instructions VI

Lesson 3: Short Term and Long-Term Funds 1

What I Need to Know? 1

What I Know 1

What’s In? 2

What’s New? 2

What is it? 3

What’s More? 4

What I Have Learned? 6

What Can I Do? 6

Assessment 6

Answer Key 7

References  

OVERVIEW 
Financing  is  an  important  part  of  every  business  because  it  provides  funds  for 
business  activities,  acquire  purchases  or  investing.  Financial  institutions,  such  as 
banks,  cooperatives  and  other  financial  companies  are  the  one  that  will  provide loans 
for their capital to help them achieve their business goals. 
This  module  focuses  on  the  two-common  source  of  financing,  the  debt  and 
Equity  financing.  Financing  can  be  either  Long-term  or  short-term  funds.  Short-term 
is  debt  scheduled  to  be  paid  within  a  year  while  long-term  is  debt  to  be  paid  in  more 
than  a  year.  The  goal  of  this  module  is  have  the  knowledge  on  how  to  avail  and 
process  the  sources  of  funds  when  there  is  cash  needed  within  the  business  and also 
helps  the  students  to  identify  directly  what  types  of sources of funds available in their 
respective community. 
 

4 
 
 5 
 
 Lesson 
3  THE SOURCES AND USES OF 
SHORT-TERM & LONG-TERM FUNDS 

What I Need to Know 

After going through this module, you are going to: 

1. Distinguish debt & Equity Financing 
2. Identify the Bank and Nonbank institutions in the vicinity that are possible 
sources of funds and enumerate their requirements and process for loan 
application.  
 

What I Know 
Let us determine how much you already know about the sources and uses of 
short-term & Long-term funds 
Direction: TRUE OR FALSE. ​Write ​T​ if the statement is correct and ​F​ if it is wrong. 
Write your answers in your notebook​.
 
_____1. Cooperative banks and credit cooperative are just the same. 
_____2. All cooperative in the Philippines regulated and supervised by the Cooperative 
Development Authority. 
_____3. By resorting to debt financing, business ownership has kept and maintained. 
_____4.One of the aims of cooperatives is to provide goods and services to its members 
to enable them to attain increase, savings, investments, productivity, and 
purchasing powered income, and promote among themselves equitable 
distribution of net surplus through maximum utilization of economies of scale, 
cost sharing and risk sharing. 
_____5. Capacity refers to the applicant’s net worth, which can be arrived at by 
deducting total liabilities from total assets. 
 
 
 
 
What’s In 
 

1 
 The  role  of  the  ​VP  for  Finance/Financial  Manager  is  to  determine  the 
appropriate  capital  structure  of  the  company.  ​Capital  structure  refers  to  how  much 
of your total assets has financed by debt and how much has financed by equity. 
-  To  be  able  to  acquire  assets,  our  funds  must  have  come  somewhere.  If  it  has 
bought using cash from our pockets, it has financed by ​equity.​  
-  On  the  other  hand,  if  we  used  money  from  our  borrowings,  the  asset  bought 
has financed by ​debt. 
 

What’s New 
 
 
Direction:​ Write your answer in the box provided below. 
 
Question:  What  comes  to  your  mind  when  you  hear  the  words  debt  financing  and 
equity  financing  based  on  your  knowledge  and  understanding  in  the  previous  lesson? 
Copy the rectangular box and write your answers in your notebook. 
 

What is it? 

Debt Financing Versus Equity Financing?

2 
 Debt  financing  is  being  done  through  borrowing,  whether  short-term  or 
long-term,  and  it  usually  comes  with  interest.  This,  together  with  other  charges,  is 
referred  to  as  the  cost  of  borrowing  or  cost  of  debt.  Common  debt  financing 
arrangements  include  bank  loans,  issuance  of  debt  instruments  like  bonds, financing 
from  nonbank  institutions  like  lending  companies  and  cooperatives,  assignment  of 
accounts  receivable,  and  selling  of  notes  receivables.  In  here,  there  exists  a 
borrower-lender  relationship.  In  the  case  of  banks  and  other  nonbank  institutions, 
borrowing entails compliance of certain requirements. 
Equity Financing​,  on  the  other  hand,  refers  to  the  sale  of  ownership  interest, 
most  often  represented  by  shares,  to raise fund for business purposes. To compensate 
for the use of funds from equity financing, dividends or profits shares has declared, set 
aside,  and  paid  by  the  business.  Common  Equity  financing  arrangements  include 
funds  raise  by  the  entrepreneur  or  business  owner  from  friends  and  family,  capital 
infusion  through  direct  sale  of shares or through initial public offerings, and financing 
by private companies. In here, there exists an investee-investor relationship. 
Short-term  financing  is  debt  scheduled  to  pay  within  a  year  while  long-term 
financing is debt paid in more than a year. 
 
 
 
 
   
What’s more? 
 
Direction:  List  the  sources  of  funds  that  are  found  in  your  community  and  describe. 
Copy the table below and write your answer in your notebook. 
Sources of fund  Describe 
Example: Bank of the Philippine Island  A  bank  is  a  financial  institution 
(BPI)  involved  in  borrowing  and  lending 
money.  Banks  take  customers’ 
deposits  in  return  for  paying 
customers  an  annual  interest 
payment. 
1.   
2.   
3.   
4.   
5.   
 
 

3 
What are the sources of funds? 
The  most  common  sources  of  funds  include  banks,  cooperatives,  and 
commercial  Finance  companies.  Cooperatives  and  commercial  finance  companies  are 
example of nonbank institutions. 
Bank-  Supervised  and  regulated  by  the  Bangko  Sentral  ng  Pilipinas  (BSP),  an 
establishment  for  the  deposit,  custody,  and  issue  of  money  for  making  loans  and 
discounts,  and  for  making  easier  the  exchange  of  funds.  In  the  Philippines,  banks 
include  universal  and  commercial  banks,  thrift  banks,  and  rural  and  cooperative 
banks. 
Credit  Cooperatives-  With  the  primary  objective  of  helping  improve  the  quality  of 
life  of  its  members.  One  of  its  aims  is to provide goods and services to its members 
to  enable  them  to  attain  increased  income,  savings,  investments,  productivity  and 
purchasing  power,  and  promote  among  themselves  equitable  distribution  of  net 
surplus  through  maximum  utilization  of  economies  of  scale,  cost-sharing  and 
risk-sharing.  In  particular,  credit  cooperatives  promote and undertake savings and 
lending  services  among  its  members.  It  generates  a  common pool of funds in order 
to  provide  financial  assistance  to  its  members  for  productive  and  provident 
purposes.  All  cooperatives  regulated  and  supervised  by  the  Cooperative 
Development  Authority  (CDA).  The  BSP,  in  coordination  with  the  CDA,  shall 
prescribe  the  appropriate  prudential  rules  and  regulations  applicable  to  the 
financial service cooperatives. 
Commercial  finance  companies- they are organizations without a bank charter that 
advances  funds  to  businesses  by  discounting  notes  receivable,  making  loans 
secured  by  mortgage,  or  financing  deferred-payment  sales  of  commercial  and 
industrial equipment. 
 
What are the usual loan requirements and application? See table below​. 
Loan Applications Requirements  ​Loan Application process 
Demographics  –includes  the  name  or  ● Receipt  of  application  form  and 
business  name,  birthdate,  address,  SSS  required documents; 
no.,  TIN  no.,  phone  no.,  and  other 
identifying  information  such  as  valid 
government-issued identification cards 
Income  or  revenue  refers  to  current  ● Verification  of information in the 
personal  income  and  employer,  application  form  and  required 
employment  and  salary  history,  and  documents may include interview; 
business  revenue,  if  there  is  already  an 
existing business. 
Assets  and  Liabilities​-applicants  may  ● Checking credit history 
ask  to  disclose  their  checking  savings   
and  investment  accounts  and  their  ● Writing  credit  report  with 
outstanding  loans  and  credit  cards,  if  appropriate recommendations 
there are any. 
Contact  or  references​-require  ● Documenting final decision 
identification  and  contact  information  of   
existing  employers,  previous  employers,  ● If  approved,  final  documents 
or  even  nearest  relative  not  living  with  sign-off  (interest  rate  and  other 
the identified contact  terms) and loan release 
Attest  and  authorization  require  ● If rejected, rejection letter sent to 
affixing  applicant’s  signature  on  the  applicant 
credit  application  stating  that 
everything  on  the application is true and 
correct  and  authorizing  the  lender  to 
verify  the  information  provided  with  the 
identified contacts and references. 
The  credit  department  evaluates  on  the   
basis  of  Character,  Capacity,  collateral, 
capital and conditions or 5C’s of credit 

4 
  
Note: Loan application requirements and process vary among banks, credit cooperatives 
and commercial finance companies. 
 
Direction:​ Copy the process questions below in your notebook and answer directly. 
1. In loan application, when is a co-maker required? 
2. What is the importance of affixing applicant’s signature on the loan application? 
3. Enumerate the five C’s of credit and describe each. 
 

What I Have Learned 

 
Direction:  ​Complete  the  sentence  stem  below.  Write  your  answers  on  a  separate 
sheet of paper. 
1. Sources of funds is important because: 
_____________________________________________________________________________________
_____________________________________________________________________________________
_____________________________________________________________________________________
_________________________________________________________________________ 
 

What I Can Do 

 
Direction:  Choose  one  bank,  one  credit  cooperative  and  one  commercial  finance 
company.  Research  on  the  following:  compare  the  loan  application  requirements  and 
loan application process.  
 
Assessment 
 
 
Directions: ​Identify the following activity if either Long-term or short-term financing. 
 
Activity/Need  Answer 
1.Acquisition of equipment   
2.Franchise of a fast-food outlet   
3.Purchase of inventory for a clothing shop   

5 
4.Loan for agricultural needs   
(ex. Palay production) 
5.Loan for purchase of a commercial space   
6.Auto-loan   
7.Housing loan   
8.Emergency loans   
9.Development of a subdivision   
10.Loan for sari-sari store supplies   
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

Answer Key 
 

6 
References 
 
 
Book: 
Vibal  group  Inc.  and  Florenz  C.  Tugas,  Aeson  Luiz  C.  Dela  Cruz,  Alloysius  Joshua  S. 
Paril, and Alger C. Tang. Business Finance, Araneta Avenue, Quezon City 
 
The  Commission  on  Higher  Education  in  collaboration  with  the  Philippine  Normal 
University: Teaching guide for Senior High School,  
 
Internet link: 
Image:​https://gbr.pepperdine.edu/2017/12/religious-beliefs-influence-financial-decision-making/
Image:​https://smallbiztrends.com/2016/01/small-business-finance-basics.html
Image:​https://www.dmu.ac.uk/study/courses/postgraduate-courses/international-business-and-
ifinance-msc-degree/international-business-and-finance-msc.aspx
Image:​https://www.credibly.com/incredibly/trending/debt-vs-equity-financing/ 

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