1
Sources of capital can be categorized based on tenure into long-term sources and short-term sources.
2
Working capital can be split into permanent working capital (financed by long-term sources) and fluctuating/variable working capital (financed by short-term sources).
3
Owned long-term sources include the issue of shares (equity and preference shares), retained earnings, general reserves, and the sale of fixed assets, which provide capital without debt obligations.
4
Borrowed long-term sources include debentures (debt instruments carrying a fixed interest rate) and long-term bank loans, which create long-term financial obligations.
5
Short-term sources of finance typically have a tenure of less than one year and are used primarily to fund day-to-day operations and fluctuating working capital.
6
Advance from customers acts as a short-term capital source when clients provide upfront payments to fund production or project execution.
7
Leasing provides the 'right to use' a property or asset in exchange for lease rent without transferring ownership, serving as a unique financing method.
8
Trade credit occurs when suppliers or manufacturers provide raw materials or goods to businesses on credit, allowing them to process or resell the goods before making payment.