All businesses need to raise finance to run a business

Jun 27th, 2015
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Abilene Christian University
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Factors to consider before opting for a specific type of finance:  Size of the business  Purpose for which the finance is needed (e.g solving a short term cash flow problem will not require the same source of funding as for an expansion plan)  Amount required  Time scale (long term, medium term or short term) Difference between Capital Expenditure and Revenue Expenditure Capital Expenditure: Spending on the purchase of fixed assets Revenue Expenditure: Spending on the day to day running of a business

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SOURCES OF FINANCESources of Short term and long term financeThe business requires two types of finance namely:1. Short term finance 2. Long term finance1. Cash credit2. Short term loans from financial institutions3. Bill Discounting4. Letter of credit5. Inter-corporate deposits6. Commercial papers7. Factoring8. Working capital advance by commercial banks1. Cash Credit: Cash Credit facility is taken basically for financing the working capital requirements of the organization. Interest is charged the moment cash credit is credited to the Bank A/C irrespective of the usage of the Cash Credit.2. Short term loans from financial institutions: Bank overdraft3. Bill Discounting:Bill Discounting is a short term source of finance, whereby Bills Receivable received from debtors is in cashed from the bank at a discounted rate.4. Letter of creditLetter of credit is an

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