What Do You Know About The Sources Of Business Finance?

Creditors are the source of external financing. When funds are arranged from the persons that have no ownership rights in the business, it is known an external financing. There are many ways of external financing like account payable, which is used to record the credit purchase of stock, is known as account payable. If a business wants stock but there is a shortage of funds. It can arrange the stock by means of accounts payable. Hence accounts payable is an important source of external finance.

Securities are the financial assets of the company like share, bonds, debentures and T-bills etc. A business unit may arrange the finance by the issuance of these securities to the general public. Any business unit can obtain loan from any commercial bank or any other financial institutions against the security of land, building and other fixed and current assets.

Owner's source is also known as internal financing. Owner's source depends upon the form of business organization. If the business is organized as partnership then funds are arrange by all the partners in the business. If business is organized a joint stock company, then funds are arranged by the issuance of shares to the general public in the stock exchange. Similarly total profit of the business is not distributed among the shareholders each year.