What Is The Criteria For Selection Of Sources Of Short Term Finances?

There are many sources of obtaining short-term finance depending on individual firm's needs. The following criteria are considered in selecting right sources of working capital or short-term finance.
1 Flexibility: flexibility refers to the increase or decrease in the amount of funds needed during different periods

2 Reliability: sources mat e trust worthy or otherwise. Business firms try to depend on reliable sources. Reliability refers to terms and conditions, market goodwill, and financial strength of the creditor.

3 Cost: credit-seeking firms want to acquire funds at the minimum possible interest rate.

4 Restrictions: fund seekers try to locate such a source, which puts minimum restrictions on them about dividend payouts, directors salaries and benefits, and capital investment. Those sources imposing hard conditions are avoided and the sources that have less restriction are preferred
5 Credit rating: some sources affect the goodwill of the fund-seeking firms. Naturally such firms which would not affect the borrowers goodwill or credit rating will be preferred
6 Hidden costs: many lenders charge exorbitant amounts in addition to regular interests which are just disclosed after loan agreement. Such hidden costs include joining fee, application processing fee, annual fee, and so on. Borrowers should first confirm about such hidden costs.

Add Comment

Report