Sources of finance

Various financial requirements of an organization are funded by different sources of finance. Accordingly,
i. Long term investments can be financed by long term sources
ii.Short term investments can be financed by short term sources
Therefore, it signifies that there is a relationship between the term of the investment and the term of the sources of financing.

Identifying the source of finance according to the nature of the
organisation
There are different forms of business organisations. Whilst some organisations have access to wide range of sources of financing, other organisations may find it difficult to finance their requirements. The higher the access to different sources of financing the higher the growth potential of the organisation.

Sole proprietorship
Savings of the proprietor, pooled money from family members and close relations
are the key sources of financing of a sole proprietor. Most of these funds are
interest free. Sole proprietor has the access to the personal loans, banking loans
and overdraft facilities too.
Partnerships
The main source of finance is the capital invested by partners of the partnership. The capital invested by different partners is agreed at the time of formation of the partnership. In addition to the capital invested, the partnership can also borrow funds from its partners. Partnerships also have the access to banking and other
financial system and obtain loans. Thus you will be able to understand that partnerships have comparatively more ability to find source of finance than sole proprietorships.
Limited liability companies/Listed companies
Limited companies have access to a wide range of sources of funding than other forms of business organizations. They can
¯ Issue shares
¯ Issue debentures
¯ Obtain mortgaged loans
¯ Obtain Bank loans
¯ Obtain loans from non banking corporative sector
¯ Enter into leasing and Hire purchase contracts etc
Co-operative societies
Membership fees paid by the members of the society are the main source of funds of the co-operative societies. In addition to member fees, they have the access to bank loans, corporate loans and Government grants.
Public enterprises
The businesses which are maintained and controlled by the Government, provincial councils, local authorities and other Government institutions fall into public enterprise category. The main source of finance of public enterprise is the Government grants. In addition to this, certain local public enterprises have been permitted to issue shares to the public for its financial requirements.