In today’s business world, it is good to be aware of the different finance sources that you can apply for the short term and long term activities of your business. These finance sources will be presented here briefly.
The number one kind of finance that we will present is called short term finance, and you can use this in fulfilling the current needs of your operation. Salaries and wages of your employees, payment of taxes, costs of repairs, payments to creditors and others are examples of the current needs of your company. It is a fact that what contributes to the need for short term finance is the imbalance of the inflow of sale revenues against the payments of purchases of the company. Situations like higher purchases compared to sales, or low sales against purchases, or in some situation sales are on credit bases while your company has to make purchases in cash basis, thus you need short term finance to balance out. You can have short term finance through bill discounting where you are given cash by banks to finance your present needs in operation. Advances from your clients is another way of short term finance, where once you confirm the order of a buyer, this buyer will give you money as an advances so that you will be helped in producing the orders. Short term finance can also come under loans using your bill of lading as guarantee, or you can purchase things for your operation using the installment method.
If your business needs 1-5 years need of funds to balance, modernize or replace some equipment needed for the operation, you can avail of the medium term finance. You can get medium term financing for sources like commercial banks, installment basis or hire purchase, industrial banks which are financial institutions that can also give assistance regarding technical and managerial matters, and debentures, TFCs and insurance firms.
For a more permanent basis and spanning around 5 years, a business can avail of the long term finance. Instances when your business would need a more heavy modernization and structural development expenses, and long term projects, you would need this long term finance. To generate big capital base especially for big establishments, sources of long term finance can come from equity shares where shares are subscribed t the general public to attain the capital base much needed. If a company has excess profits from its earnings of operations, the retained earnings can be another source of the company. Through leasing, which is another source of long term finance, a firm can acquire new equipment without spending big amounts in cash basis. Through financial institutions, aside from debentures and participation term certificates, a company can get long term loans.