SOURCES OF FINANCE The directors of Shoreline Ltd are looking for additional sou

Question

SOURCES OF FINANCE

The directors of Shoreline Ltd are looking for additional sources of short-term and long term finance to fund the new projects they are considering. They have asked you to provide a short report of three hundred (300) to four hundred (400) words on their options. In that report compare and contrast three (3) types of short-term finance and two (2) types of long-term finance available to Shoreline Ltd. You should cover the following regarding each type of finance:

• main characteristics,

• source(s), and

• relative cost.

Explanation / Answer

Since Directors of Shoreline company are looking for the additional sources of finance which can be of 2 types:-

Types of Short term finance:-

Main characteristics

It is the financing arrangement through which commercial banks allows the customer to borrow money upto certain limit against the security of movable goods hypothicated.

loans from the commercial banks for the short period for industrial purposes.

Commercial banks

Relatively high

Types of Long term finance:-

Debentures

Basis of Difference Short term Finance Long term Finance 1. Main Characteristics

• Short term finance are generally raised for less than 1 year.
• It is raised to meet the short term needs or day to day needs or operational needs of financing.

• Long term finance is generally raised for more than 5 years.
• It is raised to meet the capital expenditure like purchase of fixed assets.

2. Sources of finance Short term finance can be raised through Cash credits, Bank overdraft or short tern loans from commercial banks. Long term Finance can be raised through the issue of equity shares or preference shares or debentures or loan from banks or internal financing of funds. 3. Relative Cost Less High

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