Business Studies · Ch 8 — Sources of Business Finance
Classification of Sources of Funds
8.3
Classification of Sources of Funds
Where a business can raise funds depends partly on its form of organisation:
- Sole proprietary and partnership concerns usually raise money from personal sources or by borrowing from banks, friends and others.
- Company (joint stock) form has a much wider menu of sources available to it.
The many sources of company finance can be organised (classified) using three different bases, and the same source can appear under more than one heading depending on the lens you use:
- (i) Period basis — how long the funds are needed for: long-term, medium-term and short-term sources. (See §8.3.1.)
- (ii) Ownership basis — who supplies the funds and whether they must be repaid: owner's funds versus borrowed funds. (See §8.3.2.)
- (iii) Source of generation basis — where the funds come from relative to the firm: internal sources versus external sources. (See §8.3.3.) …
Figure classification-of-sources-of-funds-fig-8-1Classification of sources of business finance by period, ownership and source of generation
Drawn by us to help you understand the concept clearly, and verified to make sure it's accurate. For exams, practice from your textbook's own diagram.
What the Figure Shows
Our own chart classifying the sources of business finance three ways — by period (long, medium, short term), by ownership (owner's versus borrowed funds) and by **source of ge …