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.

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

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.

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.

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(3) The money deposited cannot be withdrawn before 15 years and an investor can earn compound interest from this Account.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.

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.