Sources of Short Term Finance 

Short-term financing for short periods of time is raised from various sources. Sources of short-term financing are discussed below:


1. Business loans: Business loans are created by buying and selling goods or services on credit. The most important source of short-term finance is: business loans. This debt is organized only as a result of buying and selling on loan. The buyer repays such loans within a specified period.

2. Commercial Banks: Commercial banks are one of the other sources of short term loans. Such banks provide cash loans and bank deposits to businessmen, charging a fixed rate of interest for the same. The main function of commercial banks is to grant short term loans.

3. Commercial paper: Short term money can be raised through commercial paper. Its repayment period is similar to that of other debt securities but the time period is shorter. This loan has a capital cost. Such loans are more common in developed countries such as America, India, Canada etc. Generally its duration is 1-270 days in America and 9-10 days in India.

4. Dues: Benefit enjoyed but price not paid. Such outstanding expenses create short-term financing of the organization. Eg: Telephone Bill, Salary, Rent etc.

5. Bills Receivable: The Bank deposits the Bills Receivable of the institution as collateral so that the borrower can collect cash at any time by breaking the Bills Receivable. Cash payments are less than the amount of bills receivable. The cost of settling bills receivable is called factoring cost.

6. Brokers: In developed countries, brokers provide advance payments to traders. Brokers arrange short-term loans for availing products that are in high demand in the market.

7. Co-operative Credit Societies: Sometimes Co-operative Credit Societies provide short-term finance to businesses. This type of source is very convenient for small businesses, but the business property or land must be mortgaged to take such loans.

8. Private Finance: Private finance is Asha, Prashika etc. All these types of resources provide people with various types of short-term financing. Interest rates in such institutions are high and payments are to be made in installments.

9. Financial Institutions: Every country has certain types of financial institutions. All these institutions are called financing companies. Such companies are more prevalent in developed countries. Borrowing from finance companies is expensive. Hence this source is relatively less used.

10. Relatives and friends: Small businesses and industries rely on short-term financing from many relatives and friends. But in most cases there is no guarantee of getting a loan from this source.