We can look into various sources of finance that can aid your business in its daily and long term operations. 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. Among the present needs of your business that need attending to are salaries and wages of your employees, tax payments, repair payments, payments to creditors, and others. 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. If you have orders and you confirm it, some clients can provide advances to your company so that you can produce their 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.
The next type of finance is the long term finance which a business can make use for as long as 5 years. This type of finance is needed when there is heavy modernization and structural development of a company, and also projects that are long term. For large businesses, long term finance can come through equity shares, which are public subscription so that the capital base will flow in. If a company has excess profits from its earnings of operations, the retained earnings can be another source of the company. Long term finance has another source and this is through leasing so that the company can purchase new equipment without spending or paying in cash. Other sources aside from financial institutions are debentures and participation term certificates that can give long term loans to companies.