Jun 8, 2011

Source of Finance for business organization

Sources of funding in the short term and long term
The activity requires two types of financing, namely:
1. Short-term financing
2. Long-term financing
Funding decisions in the short term with regard to the long-term assets and affected Liabilities and is also known as working capital financing.

In the short term financial decisions are generally the cash flow next year or in the duty cycle of the company. Normally, the short-term financing for a maximum period of 3 years.

The main sources of short-term financing are:

1. Cash Advance
2. Short-term bank loan
3. Bill discounting
4. Credit
5. Inter-corporate deposits
6. Commercial Papers
7. Factoring
8. advance of working capital from commercial banks

1. Cash Advance:
cash credit facility is generally taken to fund working capital needs of the organization. Interest is charged at the moment for the Cash Advance Bank A / C, regardless of credit through the use of the advance.

2. Short-term bank loans: bank overdraft

3. Update of the bill:
The bill discount is a source of short-term financing, ownership change was settled by the borrowers of the bank at a reduced rate.

4. Credit
Credit is an indirect form of financing working capital and banks than take the risk, the credit by the supplier itself provided.

A letter of credit by a bank on behalf of their clients issued to the seller. According to this document, the bank drafts drawn on them for deliveries to the customer's credit. I f the vendor complies with the conditions of the letter of credit established.

5. Inter Corporate Deposits
A deposit of one company to another, usually for a period of six months, that is, as described ICD. The short-term deposits with other firms as a relatively attractive form of money in the short term regarding the return.
These deposits are generally three types:
a. Call deposits: withdraw terminate a money market account is the lender on a given date can.
b. three-month deposits: These deposits must be taken by the borrower
commitments over a lack of short-term cash
c. Six-month deposits: Normally, businesses do not make loans to deposits that time. These deposits are usually made with high quality borrowers.

6. Commercial Papers
A business can commercial paper to raise funds. This is a promissory note. The implementation of the company to the amount and / or reimburse a specific date.
7. Factoring
One factor is a financial institution that services related to the management and financing of receivables offers credit sales. Factoring provides the resources to finance receivables, and facilitates the recovery of debts.
There are 2 banks, sponsored organizations that provide services such.

a. SBI Factors and Commercial Services Ltd.
b. CANBANK factors LTD, operated since early 1997.

8. advance of working capital from commercial banks
Since not allow the above sources, the use of funds over a longer period, the business climate to seek other sources when the need for a longer period, ie up 3 years and older.

If a company wants to invest in long-term assets, it must find to fund the needs. The Company may, to some extent rely on internally generated funds. But it is sufficient in most cases, internal resources, not to support investment projects. When this happens, the company plans to reduce their investments or seek external funding. Most companies choose to take outside funding. They supplement internal financing to external financing has risen from a variety of sources.
The main sources of long-term financing can be divided roughly into:
Internal sources include:

a. Share (equity shares and preference) in capital
b. Reserves and surplus
c. Personal loans are called by the owner as a "quasi-Capital"
External sources include:

a. loan from banks, financial institutions and international organizations like the International Monetary Fund, World Bank, Asian Development Bank.
b. Notes
c. The demands of family and friends
d. Deposits Inter-enterprise
e. Asian Depository Receipts / Global Depository Receipts
f.  Commercial documents.

Funding in the short term or long term is a function of financial management. The sound and efficient management that is to raise funds and, if necessary, at very attractive prices. Fundraising either internally or externally requires professional behavior, including compliance with both legal requirements, technical and legal Companies Act, the Securities Exchange Board of India, stock exchange authorities and other tax laws imposed as Income Act, the Foreign Exchange Management Regulations, the banking law, etc.


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