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Checkpoint-Long and Short term Financing

Checkpoint-Long and Short term Financing - • Commercial...

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The choice of sourcing of short-term financing varies from business to business and also depends on the scale of the business. Usually newly opened business operations go for commercial banks because in case of other sources of financing they will be facing problems due to lack of credibility in the market, customer will fear in offering advances, same in the case of trade credits Short term financing is a type of finance which is required for a period of less than a year. The short-term finance is used for working capital requirements of the company. Four sources of short-term financing are trade credits, advances from the customers, commercial banks and financial institutions. Trade credits - these are credits in the form of the goods given by one firm to another to buy goods. Advances from the customer - sometimes customers pay some percentage of the total amount due in advance to the company before the supply of the goods.
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Unformatted text preview: • Commercial banks - they provide loan for financing the working capital needs of the company for which they charge some predefined interest rate in return additional to the principal amount. • Financial institutions - apart from long term finances, financial institutions also offers short -term finances to the business corporations for funding their short term business operational requirements. The choice of long-term financing - usually large corporations eyeing into new markets exploring more opportunities, involved in large capital investment projects and involving huge investment in fixed assets go for long term financing. Sources of long term financing are - Debt and Equity. Financing by long-term interest loans to finance long-term investment projects and fixed assets. Equity- By going for initial public offer and diluting the stake of company to raise funds...
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