SOURCES OF FINANCE

PRESENTED BY PRADEEP KUMAR PANDEY

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Why business need Money?

To Start up To Expand To relocate To takeover To Replace To employ more staff To Finance new technology To Open new markets Day to day running of business

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Criteria for Choosing a Source of Finance

Amount of money required How quickly money is needed Cheapest option available Amount of risk involved in reason for cash

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SOURCE OF FINANCE
Sources of Finance Interna l
Profi t (RE) Working Capital Over Draf t Sale of Assets Loan Short term Debt Trade Factorin Credit g Debenture s Loan Capita l

Externa l
Long term Share Capital Ventur e Capital

Mortgage

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Sources of Short-term Finance

1.Trade credit 2. Bank credit Loans and advances Cash credit Overdraft Discounting of bills 3. Customers advances 4. Installment credit 5. Loans from co-operatives

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SHORT TERM
1.TRADE CREDITOR - Trade credit refers to credit granted to manufactures and traders by the suppliers of raw material, finished goods, components, etc 2. BANK CREDIT - Commercial banks grant short-term finance to business firms which is known as bank credit BANK LOAN -When a certain amount is advanced by a bank repayable after a specified period, it is known as bank loan CASH CREDIT -It is an arrangement whereby banks allow the borrower to withdraw money up to a specified limit. This limit is known as cash credit 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. DISCOUNTING ON BILL - Banks also advance money by discounting bills of exchange, promissory notes and bundies.
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SHORT TERM
3. CUSTOMER ADVANCE - Sometimes businessmen insist on their customers to make some advance payment. It is generally asked when the value of order is quite large or things ordered are very costly. Customers advance represents a part of the payment towards price on the product (s) which will be delivered at a later date. 4. INSTALLMENT CREDIT - Installment credit is now-a-days a popular source of finance for consumer goods like television, refrigerators as well as for industrial goods. Only a small amount of money is paid at the time of delivery of such articles. The balance is paid in a number of installments 5. LOAN FROM COOPRATIVE -Co-operative banks are a good source to procure short-term finance. Such banks have been established at local, district and state levels. District Cooperative Banks are the federation of primary credit societies. The State Cooperative Bank finances and controls the District Cooperative Banks in the state. They are also governed by Reserve Bank of India regulations.
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SHORT TERM FINANCE

MERIT
Economical Flexibility No interference in management May also serve long-term purposes

DEMERIT
Fixed Burden Charge on assets Difficulty of raising finance Legal formalities

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LONG TERM
Main source of long term finance
Mortgages Bank loans Share issues Debentures Public deposits Retained earnings

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LONG TERM
MORTGAGE - A mortgage represents a loan on a property/house that has to be paid over a specified period of time Mortgages come in many different shapes and sizes, each with its own advantages and disadvantages. SHARE CAPITAL -Share capital denotes the amount of capital raised by the issue of shares, by a company. It is collected through the issue of shares and remains with the company till its liquidation DEBENTURE - Whenever a company wants to borrow a large amount of fund for a long but fixed period, it can borrow from the general public by issuing loan certificates called Debentures. PUBLIC DEPOSITE - General public also like to deposit their savings with a popular and well established company which can pay interest periodically and pay-back the deposit when due. 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.
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LONG TERM
MERIT
There is a loan for just about anything It helps a person afford an expensive purchase One gets the funding he needs

DEMERIT
It is a long-term debt. If you miss payments, you will face serious consequences

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THANK YOU
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