Sources of Funding

SOURCES OF
FUNDING
SOURCES OF
SHORT-TERM AND
LONG-TERM
FUNDS
TWO SOURCES OF
FUNDS
TWO SOURCES OF
FINANCING
FINANCING
FINANCING
Is the process of providing funds for

business activities, making purchases or
investing.
It means to provide funding for a particular

need.
THE TWO SOURCES OF
FINANCING
Debt Financing Equity Financing
Borrowing from banks The method of raising

and lending capital by selling
institutions and not company stock to
giving up ownership. investors/stockholders
in exchange of
Creates contractual ownership interests in
obligation for the the company.
borrower to pay the
interest and the Provides financial
principal. flexibility.
TWO SOURCES OF FUNDS
1. SHORT-TERM FUNDS
2. LONG-TERM FUNDS
SHORT-TERM FUNDS
Short-term funds are normally used to

finance the day-to- day operations of the
company and let the business pay maturing
obligations in cases of unavailability of cash.
Short-term funds are used for working

capital requirements such as accounts
receivable and inventories.
LONG-TERM FUNDS
Sometimes also called capital

investment that are used for long-term
investments.
Expansion, buying new equipment, or

buying a piece of land which will be the
site of future expansion.
01 02 03 04
Advances from Credit Bank Loans
Supplier’s
Stockholders or Cooperatives
Credit
Other Owners
05 06 07 08
Credit Cards Lending Pawnshop Informal Lending
Companies Sources such as
5/6
1. SUPPLIER’S CREDIT
This is the extension of

payments given by suppliers.
It is a business-to-business (B2B)
agreement in which a customer can
purchase goods on account without
paying cash upfront, paying the
supplier at a later scheduled date.
2. ADVANCES FROM
STOCKHOLDERS OR OTHER
OWNERS
Personal funds advanced by a stockholder

to a company that usually requires interest.
These usually require little to no interest
on advances, especially if the owner is
advancing funds to assist the company in a
sudden liquidity crisis. This source,
however, is dependent on the availability of
funds of an individual.
3. CREDIT COOPERATIVES
Firms that provide lending

services to its members. Members
usually pay contributions to the
cooperative. A member can borrow
up to five times their equity or
contributions.
4. BANK LOANS
Provides several loan products like

both short-term and long-term loans
catering to different types of needs.
5. CREDIT CARDS
Provides cashless transactions

through credit or even cash
advances.
Just take note of the higher

interest rates on this source of
funds.
6. LENDING COMPANIES
Companies that are dedicated to

lending. They usually charge higher
interest and are more lenient to their
credit requirements compared to
banks.
7. PAWNSHOP
Provides funds in exchange for

collateral, usually jewelry, or other
items of value.
8. INFORMAL LENDING
SOURCES SUCH AS 5/6
Very expensive source of funds

and should be avoided.
Interest is usually paid per month,

and monthly interest is (6-5)/5 or
20%. Annual interest is actually
20%*12 or 240%.
01 02 03
Equity Internally Bank Loans
Investors Generated Funds
04 05
Lending
Bond Market
Companies
1. EQUITY INVESTORS
These are the individuals/ corporations

which are issued common stock. They
share in the ownership of the
company. There are also equity investors
who do not have voting rights in the
company but have a share in dividends,
usually a fixed percentage. These
investors are issued preferred stock.
Holders of preferred shares are first to
receive dividends than common
stockholders.
2. INTERNALLY GENERATED
FUNDS
Not all profits are distributed to

stockholders. Most of the profits
are reinvested and used by
companies to finance their needs
instead of declaring cash
dividends.
3. BANK LOANS
They provide long-term loans,

depending on the nature of the need.
Provide lower interest rates and with a

lot of requirements.
4. BOND MARKET
These are debt investments where

an investor loans money to an
entity which borrows the funds.
The services of an investment bank are

also needed to underwrite the issue
and has to be registered to SEC and be
credit rated.
5. LENDING COMPANIES
They can also provide long-term loans.

Process loans faster but they charge
higher interest rates.

Sources of Funding

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Sources of Funding

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SOURCES OF

Is the process of providing funds for

It means to provide funding for a particular

Debt Financing Equity Financing

Borrowing from banks The method of raising

Short-term funds are normally used to

Short-term funds are used for working

Sometimes also called capital

Expansion, buying new equipment, or

This is the extension of

Personal funds advanced by a stockholder

Firms that provide lending

Provides several loan products like

Provides cashless transactions

Just take note of the higher

Companies that are dedicated to

Provides funds in exchange for

Very expensive source of funds

Interest is usually paid per month,

These are the individuals/ corporations

Not all profits are distributed to

They provide long-term loans,

Provide lower interest rates and with a

These are debt investments where

The services of an investment bank are

They can also provide long-term loans.

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