SOURCES OF FINANCE IN FINANCIAL MAMAGEMENT

Sources from which a business organization may obtain funds for its operations can be classified in four different ways as follows:

 

Classification according to the duration

These sources are:

  • Long term sources funds:

These funds are refundable after a long period of time.

  • Short term funds

These funds are refundable after a short period of time: usually within two years.

  • Permanent sources of funds

These funds are not refundable as long as the firm is a going concern.

 

Classification according to the origin

These sources are:

  • Internal sources of funds:

These funds are generation from within the firm.

  • External sources of funds

These funds are generated from outside the firm.

 

Classification according to the provider of funds

These sources are:

  • Common equity capital:

This is the finance provided the real owners of the firm (ordinary shareholders). Common equity capital is the total of ordinary share capital and all the reserves.

  • Quasi Equity

These are funds provided the preference shareholders.

  • Debt Finance

This is the capital provided the firm’s creditors.

 

Long-term Sources of Finance

These include;

  • Ordinary share capital
  • Long term debt/loan
  • Bonds
  • Debentures
  • Preference share capital
  • Retained earnings
  • Venture capital
  • Business angels
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