1. Cost:
Business enterprises have to analyse the cost of mobilising and utilizing the funds.
2. Financial Capacity of the Firm:
Financially sound enterprises have capacity to pay interest promptly and return the capital at the stipulated time.

Internal Sources includes all those sources generated from within the business enterprises.
1. Trade debtors
2. Bills receivable

The sources of funds can be grouped into two categories based on generation:
1. Internal sources
2. External sources

1. Companies invite public deposits by giving advertisement in the media.
2. It offers deposit schemes for a longer tenure.
3. Person interested in making public deposit has to undergo a simple formality.

1. Debentures are an important instrument for raising long term debt capital.
2. A company can raise funds through issue of debentures which bear a fixed rate of interest.

1. Every company needs working capital.
2. Working capital requirements include purchase of raw materials, payment of salary and wages, incurring operating expenses like telephone bills, carriage inward and outward, electricity charges, premium, stationery, etc.

1. Finance is the life blood of every business.
2. No business enterprises can function without finance.
3. Fixed capital requirements include purchase of plant, machinery, furniture, fixtures, vehicles and so on.

The following are the sources of raising long term finance:
1. Shares
2. Debentures
3. Retained Earnings
4. Public Deposit
5. Long Term Loan from Commercial Banks
6. The Loans from Financial Institutions
The following are the sources of raising short term finance:
1. Loans and Advances
2. Mortgage
3. Bank Overdraft
4. Loans against the Securities
5. Discounting Bills of Exchange
6. Clean Loan
7. Trade Credit Commercial Paper (CP)
8. Pledge
9. Hire Purchase Finance
10. Hypothecation
11. Factoring

(i) A customer transfers the possession of an article with the creditor (banker) and receives loan.
(ii) Till the repayment of loan, the article is under the custody of the borrower.
(iii) If the debtor fails to refund the loan, creditor (banker) will auction the article pledged and adjust the outstanding loan from the sale proceeds.
Example: Jewel loan.

Definition:
"The Finance function is the process of acquiring and utilizing funds by a business" - R.C.Osborn
"Finance is that business activity which is concerned with the acquisition and conservation of Capital Fund in meeting the financial needs and overall objectives of business enterprises" -B.O.Wheeler

People invest the savings to gain financial security. They are investing their savings in a various investment avenues for various purposes. They may invest in various securities and wait for a stipulated period to get back their investments with higher value addition. Following are some of the personal investment avenues.
a) Public Provident Fund (PPF) :
(1) It is the safest long term investment option for the investors in India. It is totally tax-free.
(2) PPF Account can be opened in a bank or post office.
(3) The money deposited cannot be withdrawn before 15 years and an investor can earn compound interest from this Account.
(4) However, the investor can extend the time frame for the next five years if the investor does not opt to withdraw the amount matured for payment at maturity date. PPF investor can take loan against PPF Account when he/she experiences Financial difficulties.
b) Mutual Funds:
1. An individual investor who wants to invest in equities and bond with a balance of risk and return generally can invest in mutual funds
2. Nowadays people invest in stock markets through a mutual fund. Systematic investment plan is one of the best investment options in India.
c) Direct Equity or Share Purchase:
1. An individual can opt for investment in shares.
2. But he has to analyse the market price of various shares traded in stock exchange, reputation of the company, consistency in the payment of dividend, the nature of the project undertaken by the company, growth prospects of industry in which a company is operating, before investing in shares.
3. If the investment is made for a long time, it may yield good return.
4. However there is equally risky to invest in shares as there is no guaranteed return in their security.
d) Real Estate Investment:
(1) Real Estate is one of the Fastest growing sectors in India.
(2) Buying a flat or plot is the best decision amongst the investment options.
(3) The value of real asset may increase substantially depending upon the area of location and other support facilities available therein.
(4) However an investor in real estate has to be cautious and circumspect in verifying the genuineness of the title deeds before investing in real estate assets.
e) Unit Linked Insurance Plans (ULIP):
ULIP is a life insurance linked product, which provides risk cover for the policy holder along with investment options to invest in any number of qualified investments such as stocks, bonds or mutual funds.

(a) Owner's Funds:
Owner's Funds means funds which are provided by the owner of the enterprise who may be an individual or partners or shareholders of a company. The profits reinvested in the business comes under owners funds. These funds are not required to be refunded during the life time of business enterprise. It provides the owner the right to control the management of the Enterprise.
(b) Borrowed Funds:
The term 'Borrowed Funds' denotes the funds raised through loans or borrowings. For Example: Debentures, Loans from banks and Financial Institutions, Public Deposits, Trade Credit, Lease Financing commercial papers, Factoring; etc. represents borrowed funds.
1. These borrowed sources of funds provide specific period before which the fund is to be returned.
2. Borrower is under legal obligation to pay interest at given rate at regular intervals to the lender.
3. Generally borrowed funds are obtained on the security of certain Assets like bonds, land, building, stock, vehicles, machinery, document of title to goods etc.

Sources of Short Term Finance:
Short term funds are those sources which are required by the business firms for a period of within one year. Some of the important Sources of short term finance are briefly explained below.
a) Loans and advances :
(1) Loan is a direct advance made in a lump sum which is credited to a separate loan account in the name of the borrower.
(2) The borrower can withdraw the entire amount in cash immediately. It can be repaid in one or more instalments.
b) Bank overdraft :
(1) Bank overdraft refers to an arrangement whereby the bank allows the customers to overdraw the required amount from its current deposit account within a specified limit.
(2) Interest is charged only on the amount actually overdrawn.
c) Discounting of Bills of Exchange:
Discount bills of exchange refers to an act of selling the bill to obtain payment for it before maturity.
d) Trade Credit:
1. Trade credit is the credit extended-by one trader to another for the purpose of purchasing goods and services.
2. Purchaser need not pay money immediately after the purchase.
3. Such credit appears in balance sheet as Trade Creditors, or Accounts Payable.
e) Pledge:
1. A customer transfers the possession of an article with the creditor (banker) and receives loan.
2. Till the repayment of loan, the article is under the custody of the borrower.
3. If the debtor fails to refund the loan, creditor (banker) will auction the article pawned and adjust the outstanding loan from the sale proceeds.
f) Hypothecation:
1. This is loan taken by depositing document of title to the property with the banker
2. Of course the physical possession of asset property ís with the borrower
3. If the borrower fails to repay the loan amount, the article hypothecated will be sold in auction by the concerned banker.
g) Mortgage:
1. This is a type of loan taken from the bank by lodging with the banker title deeds of immovable assets like land and building
2. Business people raise loans by depositing the title deeds of the properties with the bank.
h) Loans against Securities :
Banks accept various types of securities like Fixed deposit receipt, book debts, insurance policies, supply bills, shares, debentures, bonds of companies, document of title to goods like railway receipt, bill of lading, trust receipt, ware house keepers receipt, book debts and so on and provides loan on the basis of the afore said securities.
i) Clean loan:
(1) Banks provide clean loan to certain customer of outstanding credit worthiness on the basis of their character, capacity and capability. It simply grants loan without any physical security.
(2) In other words clean loan is loan given without any security or with personal security.
j) Commercial Paper (CP):
1. Commercial paper (CP) is an unsecured money market instrument in the form of a promissory note.
2. It was introduced in India in 1990 under Section 45W of the Reserve Bank of India Act. It is issued by a firm to raise funds for a short period.
3. It can be issued for maturities between a minimum of 7 days and a maximum of up to one year from the date of issue.
k) Hire Purchase Finance:
1. Small scale firms can acquire industrial machinery, office equipments, vehicles etc., without making full payment through hire purchase.
2. With the help of assets acquired through hire purchase, they can produce and sell. From the earnings, payments can easily be made in instalments.
l) Factoring:
1. Factoring is a one of the methods of raising business finance through sale or mortgage of book debts.
2. Under this method business concerns sell the accounts receivable to a finance company called a factor at a discount.

The various sources of Finance can be classified into three categories on the basis of :
(i) Period
(ii) Ownership and
(iii) Source of generation
(i) On the basis of period :
The different source of finance can be further grouped into three categories on the basis of period:
(1) Short-term Finance - Bank overdraft, Commerce paper
(2) Medium-term Finance - Loan from bank, Lease financing.
(3) Long-term Finance - Shares, Debentures, etc.
(ii) On the basis of Ownership:
Business Finance can be divided into two categories based on ownership funds :
(1) Owners Funds - Equity shares, Retained earnings.
(2) Borrowed Funds - Debentures, loan from bank and institutions.
(iii) On the basis of Generation:
The sources of funds can be grouped into two categories based on generation:
(1) Internal sources - Trade debtors and bills receivable.
(2) External sources - Factoring, Leasing, Hire purchasing, etc.