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Unit 3: Sources of Finance

borrowed capital. The owner’s capital is used for meeting long-term financial needs and it Notes
primarily comes from share capital and retained earnings. Borrowed capital for all the other
types of requirement can be raised from different sources such as debentures, public deposits,
loans from financial institutions and commercial banks, etc.
The following section shows at a glance the different sources from where the three aforesaid
types of finance can be raised in India.

Sources of Finance of a Business
1. Long-term
(a) Share capital or equity share

(b) Preference shares
(c) Retained earnings
(d) Debentures/Bonds of different types

(e) Loans from financial institutions
(f) Loans from State Financial Corporation
(g) Loans from commercial banks
(h) Venture capital funding
(i) Asset securitisation

(j) International financing like Euro-issues, foreign currency loans
2. Medium-term
(a) Preference shares

(b) Debentures/Bonds
(c) Public deposits/fixed deposits for a duration of three years
(d) Commercial banks
(e) Financial institutions

(f) State financial corporations
(g) Lease financing/hire purchase financing
(h) External commercial borrowings

(i) Euro issues
(j) Foreign currency bonds
3. Short-term
(a) Trade credit

(b) Commercial banks
(c) Fixed deposits for a period of 1 year or less
(d) Advances received from customers

(e) Various short-term provisions

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