The Sources of Business Finance

Business finance sources can be examined in the following categories:

(1) The Short Financing:

Short-term finance is needed to fulfill the current needs of business. The current needs may include payment of taxes, salaries or wages, repair expenses, payment to creditor etc. The need for short term finance arises because sales revenues and purchase payments are not perfectly same at all the time. Sometimes sales can be low as compared to purchases. Further sales may be on credit while purchases are on cash. So short term finance is needed to match these disequilibrium.

The sources of short-term financing are:

(i) The Bank Overdraft: Bank overdrafts are a extensively used source of finance for business. In this type of arrangement, a client is able to draw an amount of money that is over and above the original balance on his account. It makes it much more convenient for businessmen to cover short-term unexpected costs.

(ii) Bill Discounting: Bills for exchange are able to be discounted at banks. This can provide cash to the person who holds the bill that could be used to fund the immediate requirements.

(iii) Advances from Customers: Advances are primarily demanded and are received to confirm the receipt of orders. However, they can also be used as a source for financing the necessary operations to fulfill the job order.