Comprehensive Report on Various Sources of Finance for Businesses

This report delves into the diverse sources of finance available to organizations, categorizing them into long-term, medium-term, and short-term options. Long-term sources, such as bonds, venture funding, and share capital, are crucial for supporting future operations and expansion. Medium-term sources, including preference capital, lease finance, and hire purchase, cater to short-term needs, often involving higher finance costs. The report also examines short-term sources like advances from customers, bill discounting, and trade credit, which provide immediate financial relief during cash crunches. Each source is analyzed for its specific characteristics, advantages, and implications for organizational financial management. The report highlights how these different sources of finance play crucial roles in supporting business operations and financial health. The report is contributed by a student to be published on the website Desklib. Desklib is a platform which provides all the necessary AI based study tools for students.

Running head: SOURCE OF FINANCE
Source of Finance
Name of the Student:
Name of the University:
Authors Note:

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Table of Contents
1. Long term sources of finance:................................................................................................3
2. Medium sources of finance:...................................................................................................4
3. Short sources of finance:........................................................................................................5
References:.................................................................................................................................7

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1. Long term sources of finance:
Long-term sources of finance are used by organizations for acquiring the adequate
capital to support their future operations. These long-term sources of finance are relatively
used by the organization, as the finance cost is lower that other forms of finance. Some of the
long-term sources of finance that are used by organizations are bond, venture funding, and
share capital.
Bonds are issued by organizations at a nominal coupon rate, which needs to be paid
on different intervals set by the management. Bonds are issued with adequate credit rating
that is provided by the credit rating agencies, which allow the investors to make relevant
investment decisions (Schiff and Schiff 2016). Bonds are valued by the investors by
evaluating the bond yield and inflation rate, which helps in determining the current prices of
the bond and detect the overall returns that will be generated from investment. Rising
inflation rate directly reduces the level of bond prices, as less investor are willing to pay, due
to the negative impact from rising inflation.
Venture funding is considered the second long term sources of finance that is used by
organisations support their operations. Venture funding is considered a type of private equity
that is provided by some investors to the firm during the initial or emerging stage. This type
of funding is provided to the organization that show high growth potential to the investor and
ensure them higher returns in the end. The venture funding allows investors to acquire major
part in the organization in form of shares, which can be utilized in acquiring higher the
dividends in the long-run (Aiyar, Calomiris and Wieladek 2014).
The third major long term sources of finance that is used by organizations is issuing
shares or equity to the relevant investor. The shares issue allows the management to acquire
the adequate capital required for their expansion and other activities. Share issue is conducted

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with the help of adequate stock exchange, which allow the management to sell the shares to
the interested investors. Both venture funding and share issue does not include interest
payments, whereas the organization need to provide dividends on the profits that has been
made during the fiscal year.
2. Medium sources of finance:
The organizations also use Medium sources of finance for supporting there initially,
which require higher interest payment or finance cost. Medium source of finance is generally
needed by the organization for a short duration, as it supports small backlog in the current
operational capability of the company. There are different sources of finance that are used by
the organization during medium term, which are preference capital, lease Finance, and hire
purchase. These types of finances relatively require small period of investment, which allows
the management to continue their operations without any kind of halt (Butler, Cornaggia and
Gurun 2015).
Preference capital is acquired by issuing preference shares by the organization, which
relatively convert to normal shares or is redeemed back by the management. The preference
shares are issued by the organization on an urgent basis where it needs to acquire the capital
to support the financial obligations. The preference shares do not require any kind of interest,
while dividends need to be paid by the organization for each fiscal year. Moreover, the
payment of preference shares is conducted prior to the ordinary shareholders of the
organization.
Lease finance is considered a medium source of finance, which is used by the
organization to support their operations. The company takes lease finance when certain assets
are needed by the management to support their overall operations. The lease payment is

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relatively considered rent that is fixed by the lessor and lessee, which needs to be paid on
monthly basis by the lessee (Arcand, Berkes and Panizza 2015).
Hire purchase is also medium source of finance that is used by the organization for
acquiring the adequate and sting regular installment while using it. This type of measure
allows the organization to utilize the assets and provide installment on a regular basis to the
seller. Hire purchase allows the organization to pay initial cost of the Assets and interest for
the number of delays made in payment. Hire purchase can be considered or installment plan,
which is used by organizations to acquire the required level of machinery and equipment,
support to their operations and minimize the cash outflow (Fisher 2015).
3. Short sources of finance:
Advances received from customers, bill discounting, and trade credit is considered the
short source of finance that is acquired by the organisation. The short-term source of finance
relatively allows the organisation to acquire the required money for a short period of time to
support their operations. This type of measure is used by the organisation during the cash
crunch, which allows the company to continue their operations without any kind of hindrance
of capital shortage (Hes et al. 2017).
Advance received from customer is considered adequate short-term sources of
finance, which allows the organization to acquire the required funds for supporting that
payment to the creditors. The advance payment is relatively conducted with certain discounts
to the customer, which reduces the profitability conditions of the organization. The advance
payment is a boost to the overall cash position of the organization, which is provided to the
buyer after implementing certain discounts. This type of funding is relatively nominal and
needs trust from the buyers regarding the delivery of the final product. This reduces the debt

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collection period and ensures high cash position of the organization (Burns and Dewhurst
2016).
Bills discounting is a short term sources of finance that is used by the organization for
adequately acquiring the level of financial from the financial intermediaries which charge a
fee for their services. Trade credit is considered an essential tool for the financial growth of
the organization, as it allows the management to extend the payment date to the supplier after
buying the relevant goods. The increment in trade credit allows the organization to reduce the
cash outflow and maintain adequate cash to support the operations during the short term
(Burns 2016).

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References:
Aiyar, S., Calomiris, C.W. and Wieladek, T., 2014. Does macro‐prudential regulation leak?
Evidence from a UK policy experiment. Journal of Money, Credit and Banking, 46(s1),
pp.181-214.
Arcand, J.L., Berkes, E. and Panizza, U., 2015. Too much finance?. Journal of Economic
Growth, 20(2), pp.105-148.
Burns, P. and Dewhurst, J. eds., 2016. Small business and entrepreneurship. Macmillan
International Higher Education.
Burns, P., 2016. Entrepreneurship and small business. Palgrave Macmillan Limited.
Butler, A.W., Cornaggia, J. and Gurun, U.G., 2015. Substitution between Sources of Finance
in Consumer Capital Markets. forthcoming in Management Science.
Fisher, R.C., 2015. State and local public finance. Routledge.
Hes, T., Mintah, S., Sulaiman, H., Arifeen, T., Drbohlav, P. and Salman, A., 2017. Potential
of microcredit as a source of finance for development of Sri Lankan biogas industry. Energy
& Environment, 28(5-6), pp.608-620.
Schiff, J. and Schiff, A., 2016. Get in gear! Team up with HR and IT to transform the future
of finance. Strategic Finance, 97(10), pp.24-32.