Finance which acts as the lifeblood in the modern business types is one of the most important consideration for an entrepreneur-company. While Implementing, expanding, diversifying, modernizing or rehabilitating any project the meaning of finance is better understood.
Criteria While Getting Finances
More effective appraisal policy is needed while determining the
source
of the fund. The company has to achieve its main objectives while deciding the sources of funds available to him. The appraisal policy solely relies upon the risk, tenure and cost of each and every source of fund. Keeping in view the financial conditions of the economy as well as the company the sources of finance are determined. As the sources of funds have their own merits and demerits.
Types of Financial Needs In A Business
Generally the Business enterprises need funds to meet different types of needs. All the financial needs of a business may be broadly grouped into three categories, which are as follows:
- Long-term financial needs
Here the requirements of funds are for a period exceeding 5-10 year. Investments in plant, machinery, land, buildings, etc, are considered as long-term financial needs.
- Medium term financial needs
In case of the medium term financial needs the time constraint is fixed at a period exceeding one year but not exceeding 5 years.
In some cases the long-term requirements, funds cannot be arranged immediately so it is fulfilled from the medium term sources and thus the demand of medium term financial needs are generated.
- Short term financial needs:
Financial needs dealing with financing the current assets such as stock, debtors, cash, etc comes under this category. Meeting the working capital requirements comes under this. Here the accounting period is of one year.