Sources of Finance to the Construction Companies

Sources of finance to the construction companies

1. According to sources of finance

a. Long-term sources of finance

Long term financing means capital requirement for a period of more than 5 year to 10, 15, 20 years or may be more depending on other factors. Capital expenditures in fixed assets like plant and machinery, land and building, etc. of a business are funded using long-term sources of finance. Part of working capital which permanently stays with the business is also financed with long term sources of funds. Long term financing sources can be in form of any of them

a. Share capital or equity shares

b. Preference share or preference capital

c. Retained earnings or internal accruals

d. Debentures/ bonds

e. Term loan from financial institutes, government and commercial banks

f. Venture funding

g. Asset securitization

b. Medium term sources of finance

Medium term financing means financing for a period of 3 to 5 years and is used generally concerns loans required to finance expansion of the business, machinery, plants and equipment and also road vehicles.

Medium term financing sources can in the form of one of them

a. Preference capital or preference shares

b. Debentures/ bonds

c. Medium term loan from financial institutes, government and central banks

d. Lease finance

e. Hire purchase finance

c. Short term sources of finance

Short term financing means financing for a period of less than 1 year, The need for short term finance is arises to finance the current assets of business like an inventory of raw material and finished goal, debtors, minimum cash and bank balance, etc. short term financing is also named as working capital financing. Short term finances are available in the form of

a. Trade credit

b. Short term loan like working capital loans from commercial banks

c. Fixed deposits for a period of 1 year or less

d. Advances received from customer

e. Creditor

f. Bill discounting

2. According to source of generation

a. Internal source

The internal source of capital is the capital which is generated internally by the business. These are as follows

a. Retained profits

b. Reduction or controlling of working capital

c. Sales of asset

The internal source of funds has the same characteristic of owned capital. The best part of the internal sourcing of capital is that the business grows by itself and does not depend on outside parties.

b. External sources

An external source of finance is the capital generated from outside the business. Apart from the internal sources of funds, all the sources are external sources of capital.

These are as follows

a. Equity

b. Debt or debt from banks

c. All other except mentioned in internal sources