SENIOR HIGH SCHOOL

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

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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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Undersecretary: Diosdado M. San Antonio, PhD
Assistant Secretary: Alma Ruby C. Torio, PhD

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SENIOR HIGH SCHOOL

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

This instructional material was collaboratively developed and reviewed by

educators from public and private schools, colleges and universities. We
encourage teachers and other education stakeholders to email their
feedback,comments, and recommendations to the Department of Education
ataction@deped.gov.ph.

We value your feedback and recommendations.

Department of Education ● Republic of the Philippines

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 TABLE OF CONTENTS

Page No.

Cover page III

Table of Contents V

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-

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 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.

GENERAL INSTRUCTIONS

For the learners: For the teacher:

To be guided in achieving the objectives of
this module, do the following:
1. Read and follow instructions
carefully.
2. Write all your ANSWERS in your
Activity Book
3. Answer the pretest before going
through the lessons.
To facilitate and ensure the students’
learning from this module, you are
encouraged to do the following:
1. Clearly communicate learning
competencies and objectives
2. Motivate through applications and
connections to real life.
3. Give applications of the theory

4. Take note and record points for 4. Discuss worked-out examples

clarification. 5. Give time for hands-on unguided
5. Compare your answers against the classroom work and discovery
Lesson
key to answers found at the end of 6. Use formative assessment to give
THE SOURCES AND USES feedbackOF SHORT-

3
the module.
6. TERM
Do the activities and fully& LONG-TERM FUNDS
7. Introduce extensions or
understand each lesson. generalizations of concepts
7. Answer the self-check to monitor 8. Engage in reflection questions
what you learned in each lesson.
9. Encourage analysis through higher
What I Need to Know
8. Answer the posttest after you have
order thinking prompts
gone over all the lessons.
10. Provide alternative formats for
student work

11. Remind
After going through this module, you are going to: learners to write their

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.

V
 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

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, ithas financed by equity.
- On the other hand, if we used money from our borrowings, the asset
bought has financed by debt.

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 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?

https://www.credibly.com/incredibly/trending/debt-vs-equity-financing/

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 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.

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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
business revenue, if there is already an interview;
existing business.
Assets and Liabilities-applicants  Checking credit history
may ask to disclose their checking
savings and investment accounts and  Writing credit report with
their outstanding loans and credit appropriate recommendations
cards, if there are any.
Contact or references-require  Documenting final decision
identification and contact information
of existing employers, previous  If approved, final documents
employers, or even nearest relative not sign-off (interest rate and other
living with the identified contact terms) and loan release
Attest and authorization require  If rejected, rejection letter sent
affixing applicant’s signature on to applicant
the credit application stating that

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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

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.

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 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
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

Congratulations!
You have completed your
journey in this subject. Great job!

It’s now time to go, explore, and

apply all
your learning’s here

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XII
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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For inquiries or feedback, please write or call:
Department of Education – Division of Misamis Oriental
Don A.Velez St., Cagayan de Oro City
Contact number: 0917 899 2245
Email address: misamis.oriental@deped.gov.ph