Causes of Business Finance


Types of business finance could be studied under the subsequent heads:

(1) Temporary Finance:

Short-term financial is needed to fulfill the present needs of company. The current needs might include payment of fees, salaries or income, repair expenses, transaction to creditor and so on The need for short term fund arises because product sales revenues and purchase repayments are not perfectly exact same at all the time. Occasionally sales can be lower as compared to purchases. Additional sales may be upon credit while buys are on cash. Therefore short term finance is required to match these disequilibrium.

Sources of short term financing are as follows:

(i) Bank Overdraft: Financial institution overdraft is very popular source of business economic. Under this customer can draw specific sum of money over and above their original account balance. Therefore it is easier for your businessman to meet temporary unexpected expenses.

(ii) Bill Discounting: Expenses of exchange may be discounted at the banking institutions. This provides cash towards the holder of the expenses which can be used to funding immediate needs.

(iii) Advances from Clients: Advances are mainly demanded and obtained for the confirmation associated with orders However , they are also used because source of financing the actual operations necessary to perform the job order.

(iv) Installment Purchases: Buying on installment provides more time to make obligations. The deferred bills are used as a supply of financing small costs which are to be compensated immediately