Sources from which a business organization may obtain funds for its operations can be classified in four different ways as follows:
Classification according to the duration
These sources are:
- Long term sources funds:
These funds are refundable after a long period of time.
- Short term funds
These funds are refundable after a short period of time: usually within two years.
- Permanent sources of funds
These funds are not refundable as long as the firm is a going concern.
Classification according to the origin
These sources are:
- Internal sources of funds:
These funds are generation from within the firm.
- External sources of funds
These funds are generated from outside the firm.
Classification according to the provider of funds
These sources are:
- Common equity capital:
This is the finance provided by the real owners of the firm (ordinary shareholders). Common equity capital is the total of ordinary share capital and all the reserves.
- Quasi Equity
These are funds provided by the preference shareholders.
- Debt Finance
This is the capital provided by the firm’s creditors.
Long-term Sources of Finance
These include;
- Ordinary share capital
- Long term debt/loan
- Bonds
- Debentures
- Preference share capital
- Retained earnings
- Venture capital
- Business angels
