Vital Information on Sources of Business Finance

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. Sources of short term finance are as follows:

Bank Overdraft: Bank overdraft is very widely used source of business finance. Under this client can draw certain sum of money over and above his original account balance. Thus it is easier for the businessman to meet short term unexpected expenses. Bill Discounting, bills of exchange can be discounted at the banks. This provides cash to the holder of the bill which can be used to finance immediate needs. Advances from Customers, advances are primarily demanded and received for the confirmation of orders However, these are also used as source of financing the operations necessary to execute the job order. Installment Purchases, purchasing on installment gives more time to make payments. The deferred payments are used as a source of financing small expenses which are to be paid immediately.

Bill of Lading, bill of lading and other export and import documents are used as a guarantee to take loan from banks and that loan amount can be used as finance for a short time period. Financial Institutions, different financial institutions also help businessmen to get out of financial difficulties by providing short-term loans. Certain co-operative societies can arrange short term financial assistance for businessmen. Trade Credit, it is the usual practice of the businessmen to buy raw material, store and spares on credit.