Sources and Uses of Short-term and Long-term Funds in Business Finance, Slides of Business Economics

Download Sources and Uses of Short-term and Long-term Funds in Business Finance and more Slides Business Economics in PDF only on Docsity! Business Finance CHAPTER 4 Sources and Uses of Short-term and Long-term Funds Sources and Uses of Short-Term Funds  Short-term funds are normally used to finance the day-to- day operations of the company. What are the USES of SHORT-TERM FUNDS?  Short-term funds are used for working capital requirements such as accounts receivable and inventories.  Short-term funds can also be used for bridge financing where a company has some maturing obligations and does not have enough cash to pay such maturing obligations. Sources and Uses of Short-Term Funds 1. Suppliers’ credit Suppliers of raw materials and merchandise are the best sources of short-term working capital, which is why a good relationship has to be nurtured with suppliers. What are the SOURCES of SHORT-TERM FUNDS? Sources and Uses of Short-Term Funds 2. Advances from stockholders If you have enough personal assets and you control the company, advancing funds to the company when there are financial requirements is an easy way for the company to raise funds. Interest on these advances can be charged by the stockholder. What are the SOURCES of SHORT-TERM FUNDS? Sources and Uses of Short-Term Funds 5. Lending companies  These are small lending companies which cater normally to small and medium enterprises.  The lending process is much faster as compared to banks but they charge higher interests.  These lending companies can finance working capital requirements. What are the SOURCES of SHORT-TERM FUNDS? Sources and Uses of Short-Term Funds 6. Informal lending sources such as “5-6.”  This is a very expensive source of financing and should be avoided.  The reason it is called “five-six” is because for every ₱5 that you borrow, you have to return ₱6. This 20% interest is just for a month. What are the SOURCES of SHORT-TERM FUNDS? Sources and Uses of Long-Term Funds  Long-term funds are used for long-term investments or sometimes called capital investments including expansion, buying new equipment, or buying a piece of land which will be the site of future expansion. What are the USES of LONG-TERM FUNDS?  Long-term funds can also be used to finance permanent working capital requirements. Sources and Uses of Long-Term Funds 3. Banks  Banks are sources of different types of financing from short-term to long-term.  Banks provide lower interest rates as compared to other financial institutions but they have a lot of requirements and a borrower goes through a process, normally taking a month to three months before a loan gets approved. What are the SOURCES of LONG-TERM FUNDS? Sources and Uses of Long-Term Funds 4. Bond market  This market is gaining more popularity among big publicly listed companies for their fund raising activities. Philippine bonds are now traded through the electronic platform provided by the Philippine Dealing System Holdings Corporation (PDS Group).  To issue bonds, the services of an investment bank are also needed to underwrite the issue. The bonds that will be issued have to be registered with the Securities and Exchange Commission and they have to be credit rated. What are the SOURCES of LONG-TERM FUNDS? Sources and Uses of Long-Term Funds 5. Lending companies  These are the same lending companies previously discussed. Some of them also provide long-term loans ranging from two to five years.  These lending companies can process loans faster but they charge higher interest rates. What are the SOURCES of LONG-TERM FUNDS?