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FINANCING SMALL BUSINESS

Sources of Finance for the Small


Business Firms

SOURCES OF SHORT-TERM
FINANCE

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FINANCING SMALL BUSINESS


Sources of Finance for the Small Business Firms

SOURCES
OF SHORT-TERM FINANCE
Variable component

Is financed through
2/1/15

FINANCING SMALL BUSINESS


Sources of Finance for the Small Business Firms

SOURCES OF SHORT-TERM FINANCE


Some of the important sources of short-term
finance

Bank credit: Bank credit is one of the

major source of short-term finance . Banks


offer both secured as well as unsecured
loans to business firms such as cash credit,
overdrafts, loans and advances. Banks do
not provide 100 percent finance. They insist
that the customers should bring a portion of
finance from other sources.
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FINANCING SMALL BUSINESS


Sources of Finance for the Small Business Firms

SOURCES OF SHORT-TERM FINANCE


Some of the important sources of short-term
finance

Public deposits: Another source of short-

term finance is unsecured public deposits.


In some countries, a company can borrow
only up to 25 percent of its share capital
and free reserves. The rules relating to
public deposits have been made very strict
in order to protect the interest of investors.
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FINANCING SMALL BUSINESS


Sources of Finance for the Small Business Firms

SOURCES OF SHORT-TERM FINANCE


Some of the important sources of short-term
finance

Accounts payable: They are created

when the firm purchases raw materials,


suppliers goods for resale, on credit terms
on open account. They are interest free and
securities free. However accounts payable
is a legally binding obligation of a firm.
They also include bills payable.
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FINANCING SMALL BUSINESS


Sources of Finance for the Small Business Firms

SOURCES OF SHORT-TERM FINANCE

Unsecured non-bank short-term sources


The following non-bank short-term sources
are used though they are not available to
every business:
Private loans: A short-term unsecured

loan may be obtained from a wealthy


shareholder, a major supplier or other party
interested in assisting the firm through a
short-term difficulty.
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FINANCING SMALL BUSINESS


Sources of Finance for the Small Business Firms

SOURCES OF SHORT-TERM FINANCE

Unsecured non-bank short-term sources


The following non-bank short-term sources are
used though they are not available to every
business:
Cash advances from customers: A

customer may pay for all or a portion of


future purchases before receiving the goods.
This form of unsecured financing provides
funds to purchase raw material and produce
the final products.
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FINANCING SMALL BUSINESS


Sources of Finance for the Small Business Firms

SOURCES OF SHORT-TERM FINANCE

Unsecured non-bank short-term sources


The following non-bank short-term sources are
used though they are not available to every
business:
Commercial paper: These consist of

promissory notes with maturities of various


periods ranging from three days to even a year
is usually issued in higher denomination and can
be used only by large well known companies
which enjoy a fairly high credit rating.
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