What are the different sources of short term financing?

Answer 1

Short term finance: This type of finance is required for a period of less than a year. It is required to provide working capital for the business. The working capital is needed to purchase of raw material, payment of wages, salaries and meeting day to day expanses of the business. Short term finance may be required to meet the seasonal requirements of business. It is available at low rate of interest.

Sources of short term finance:

1. Trade credit: Trade credit is a loan in the form of goods. Tradecredit is given by one firm to another firm which buys goods. This creditrange from 15 days to 3 months is granted on the basis of good will of the purchaser.

Trade credit is given by the seller to the buyer of goods. It is extended by the whole seller to the retailer. Such credit facility may be called a trade credit.

2. Advances from customers: some times the reputed business houses receive a part of the price or payment from the buyers before the supply of goods. The remaining amount is received on the supply of the commodity. Advances are received for the confirmation of orders.

3. Commercial banks: The major portion of short term loans and advances are provided by the commercial banks.

4. Financial institutions: Financial institutions also advance short term finance to the business. The finance corporations help the business by providing short term funds. Some financial institutions are working at provincial level under the cooperative societies act