What Are The Sources For Raising Short Term Finance?

Another way is by using the advances. Advance is a part of payment of the full price. The remaining amount of paid by the buyer on the supply of the commodity. There are some businesses whose products have wide demand in the market. These businesses sometimes get advance payments from their customers and agents. These advances are not loan they are a source of finance for he business and help in minimizing their investment in working capital.  

The second source which can be used to generate capital for the business is installment credit. Sometimes the business purchases goods on installments. The possession of the goods is taken but the payment is made in installments over a specified period of time. The business by not paying the full price is able to get some funds to meet the short term needs of business. It is kind of financial assistance provided in kind.

There is another option available for the bank overdraft. Bank overdraft is the best known and most popular source of raising short term funds. An overdraft is an agreement with the bank by which the customer may draw more than his deposit in current account up to a certain limit and for a specified period. Interest is charged daily on outstanding amount. The overdraft facility is given against the security of an asset.

When the owner has not enough money to meet the current expenditures.This type of finance is obtained for a period of one year or less than one year. It is required for the temporary needs of the business. It is also called the working capital because it is needed to meet the current capital needs of business. e.g. purchase of raw material, payment of salaries and wages, meeting expense energy etc. Short term finance is available at low rate of interest.

Sources of Short Term Finance:
The major portion of short term finance is provided by the commercial banks. The bank provides loans in the shape of overdraft, cash credit and discounting of bills of exchange. The main difference between cash credit and overdraft is that overdraft is allowed for a short period where as the cash credit is allowed comparatively for a long period.
Trade credit is given by one firm to another firm which buys goods. Trade credit which is usually ranges from fifteen days to three months is granted on the basis of financial standing and good will of the purchaser.

Some times the reputed business houses take advance money from the customer for the supply of goods. The remaining amount is received on the supply of commodity.
The financial institutions also advance short term finance to the business. The finance corporations helps the business by providing short term funds.