Risk and sources of finance

Jun 27th, 2015
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Abraham Lincoln University
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It facilitates the smooth running of business operations by meeting day to day financial requirements. It enables firms to hold stock of raw materials and finished product. Goods can be sold on credit.

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Short Term Sourcesof FinancePurpose of Short Term Finance Itfacilitates the smooth running of businessoperations by meeting day to day financialrequirements. Itenables firms to hold stock of raw materialsand finished product. Goodscan be sold on credit.Contd Short-termfunds are also required to allowflow of cash during the operating cycle.Operating cycle refers to the time gap betweencommencement of production and realisationof sales. When it is necessary to increase the volumeof production at a short notice.Short Term Sources1. Trade credit2. Bank credit3. Customers advances4. Instalment credit5. Loans from co-operativesTrade CreditCredit granted tomanufacturers by suppliers.Goods are delivered butpayments are not made.Usually 30-90 days credit.Benefits Nosecurity is required to avail of tradecredit. Interestis not payable in case of trade credit.Bank CreditCommercial banks grant shortterm finance to business firmswhich is known as bank credit.Forms:-LoansBank overdraftCash CreditLoans Whena certain amount is advanced by abank repayable after a specified period, it isknown as bank loan. Usuallyassets.loans are granted against security ofCash Credit Banksallow the borrower to withdraw moneyupto a specified limit. Rate of interest varies depending upon theamount of limit. Interest is charged only on the amount

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