When we meet the funding needs by borrowing it is called debt financing. It really is obtained if we possessed capital of a company is not sufficient to meet up with the continuing business needs. Sometimes loan is obtained to save the business from dissolution and sometimes to meet up with the urgent expenses. Loan is from creditors for short term for long term as well as for medium term.
1. SHORT-TERM Finance. 2. Medium Term Finance. 3. LONG-TERM Finance. This type of source is obtained for a period of one yr or significantly less than one 12 months. It is required for the temporary needs of the business. The duration selection of the intermediate term Finance is in one year to a decade.
The commercial banking institutions receive the cost savings of individuals and give it for short-term businessman. The bank increases the loan in the shape of cash or over draft. Many companies of the central bank or investment company provide loans to private business. Generally central bank or investment company authorizes them to enhance loan in the crisis period.
Central bank or investment company provides re-discounting facilities on 1st Class bills. The cash can be elevated when loans are not on simple terms. These banks advance loans the top scale foreign business according to nationality. A true number of people borrowing from friends and relatives, for a short period. But this source is very limit.
Private money lenders like landlord and Sahukar also lends the amount of money but their rate of interest is very high. These are specialized finance companies and they also lend the money for short and medium terms. These provide loans to rural areas for business on the security of land. These provide short-term and medium term loans. These companies supply the loans for intake goods. Small businessman borrows the amount of money for medium and short term from these agencies. Sometimes controlling providers provide short term financing to the worried businessman also. These financial agencies are formed to buy the promissory note of the small business and then resale them to the investors in the open market.
Some suppliers sell their product on cash basis while others on installment basis. Some part of the purchase price is paid during purchase and the total amount is paid on installment basis. This method pays to in providing short-term finance also. This sort of finance is necessary for a period more than a decade. The long term finance can be used for the construction of machinery and building. There are various financial institutions which provide long term finance to the business and industry.
For example in India, ICICI, IFCI and IRBI and in Pakistan, PICIC, IDBP,Insurance and NIT Companies are those institutions which provide long term loan. A long-term finance is act by the savings of the company also. A company does not distribute its all profit among the shareholders. Each year They transfer some portion of the revenue the reserve money.
- Thing a little extended than to believe like any other account
- Expense management tools
- Support for early stage SME investment
- Dialogue Among Partners
So an organization uses this keeping for investment. Joint stock company can issue the debentures or stocks. Sole traders and partner can dispose off their private assets. They are able to use their revenue also. By inviting new partners in a firm the volume of capital can be increased. The new comers will contribute their talk about of capital in business but they won’t take part the affairs of a business. In acquiring the long term fund for a general public limited company underwriters services can’t be ignored. They embark on to dispose off the securities of the ongoing companies and receive payment for their services.
Let’s take a look why. 98.01 at the end of four years. 87.89 at the last end of four years. You can see that any investment that swings backwards and forwards by symmetric gains and losses will always lose money. What happens if the investments are more complex? How do you compare the next seven 12 months investments?