FINANCING

SOURCES
PREPARED BY: FUGOSO, BEVERLY J.
 WHAT IS FINANCING SOURCES?
A source or sources of finance, refer to where a business
gets money from to fund their business activities. A
business can gain finance from either internal or external
sources.

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TRADITIONAL SOURCES OF FINANCE CHART

LONG TERM SOURCE OF FINANCE

SECURITY FINANCING INTERNAL FINANCING LOANS FROM BANKS

EQUITY SHARES
RETAINED EARNINGS LOANS FROM
PREFERENCE SHARES FINANCIAL
INSTITUITION
DEBENTURES DEPRECIATION FUND S

PUBLIC DEPOSITS
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TRADITIONAL SOURCES OF FINANCE CHART
SHORT TERM SOURCE OF FINANCE

FROM BANKS OTHER SOURCES

CASH CREDIT TRADE CREDIT

BANK OVERDRAFT CUSTOMER ADVANCES

BILLS DISCOUNTING INSTALLMENT CREDITT

SHORT TERM BANK LOAN

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LONG TERM SOURCE
OF FINANCE
Long term financing is a form
of financing that is provided
for a period of more than a
year. Long term financing is
also known as Fixed Capital
Finance.

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SOURCES OF LONG-TERM FINANCE
SECURITY FINANCING
(a) Equity shares - Such a shareholder must
share the profits and bear the losses incurred
by the company. Equity shareholders are
regarded as the real owners of the company.
(b) Preference shares - A share which entitles
the holder to a fixed dividend, whose payment
takes priority over that of ordinary share
dividends.

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SOURCES OF LONG-TERM FINANCE
SECURITY FINANCING

(c) Debentures - A debenture is a type of

debt instrument issued by a company that
is not secured by physical assets or
collateral.
(d) Public Deposit - It implies any money
received by a company through the
deposits or loans collected from the public.

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SOURCES OF LONG-TERM FINANCE
INTERNAL FINANCING
(a) Retained Earnings - The company may not
distribute the whole of its profits among its
shareholders. It may retain a part of the profits
and utilize it as capital for further long-term
activities.
(b) Depreciation Fund - A fund set up by a
company to provide money to buy new fixed
assets.

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SOURCES OF LONG-TERM FINANCE
LOAN FINANCING TERM
(a) Loan from Banks - Many industrial development
banks, cooperative banks and commercial banks
grant medium term loans for a period of 3-5 years
for supporting the long-term capital investments by
the company viz., purchase of Fixed Assets,
expansion etc.
(b) Laon from Financial Institutions - There are many
specialized financial institutions established by the
Central and State governments which give long
term loans at reasonable rates of interest for the
long-term capital investments by the company.
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SHORT TERM SOURCE
OF FINANCE
Short term financing are
required to meet its day-to-
day expenses. It enables
continuous availability of
liquid cash to meet day to
day expenses. It is also known
as Working Capital Finance.

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SOURCES OF SHORT-TERM FINANCE
BANK FINANCE
(a) Cash Credit - It is an arrangement whereby
banks allow the borrower to withdraw
money up to a specified limit.
(b) Bank overdraft - When a bank allows its
depositors or account holders to withdraw
money in excess of the balance in his account
up to a specified limit, it is known as overdraft
facility.

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SOURCES OF SHORT-TERM FINANCE
BANK FINANCE
(c) Bills Discounting - Banks also advance
money by discounting bills of exchange,
promissory notes and hundis.
(d) Short term Bank Loan - When a certain
amount is advanced by a bank repayable after
a specified 9 period, it is known as bank loan.

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SOURCES OF SHORT-TERM FINANCE
OTHER SOURCES
(a) Trade credit - Trade credit refers to credit
granted to manufacturers and traders by the
suppliers of raw material, finished goods,
components, etc.
(b) Customers' advances - Customers' advance
represents a part of the payment towards
price on the product (s) which will be delivered
later.

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FLORA@CONTOSO.COM