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THE SOURCES
AND USES OF
SHORT TERM
AND LONG TERM
FUNDS
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 The role of the VP for Finance/Financial Manager is to

determine the appropriate capital structure of the company.
Capital structure refers to how much of your total assets has
financed by debt and how much has financed by equity.
 - To be able to acquire assets, our funds must have come
somewhere. If it has bought using cash from our pockets, it has
financed by equity.
 - On the other hand, if we used money from our borrowings, the
asset bought has financed by debt.
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 Debt financing is being done through borrowing, whether short-

term or longterm, and it usually comes with interest. This,
together with other charges, is referred to as the cost of
borrowing or cost of debt. Common debt financing
arrangements include bank loans, issuance of debt instruments
like bonds, financing from nonbank institutions like lending
companies and cooperatives, assignment of accounts
receivable, and selling of notes receivables. In here, there exists
a borrower-lender relationship. In the case of banks and other
nonbank institutions, borrowing entails compliance of certain
requirements.
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 Equity Financing, on the other hand, refers to the sale of

ownership interest, most often represented by shares, to raise
fund for business purposes. To compensate for the use of funds
from equity financing, dividends or profits shares has declared,
set aside, and paid by the business. Common Equity financing
arrangements include funds raise by the entrepreneur or
business owner from friends and family, capital infusion through
direct sale of shares or through initial public offerings, and
financing by private companies. In here, there exists an
investee-investor relationship.
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 Short-term financing is debt scheduled to pay within a year while

long-term financing is debt paid in more than a year
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What are the sources of funds?

 The most common sources of funds include banks,

cooperatives, and commercial Finance companies.
Cooperatives and commercial finance companies are example
of nonbank institutions.
  Bank- Supervised and regulated by the Bangko Sentral ng
Pilipinas (BSP), an establishment for the deposit, custody, and
issue of money for making loans and discounts, and for making
easier the exchange of funds. In the Philippines, banks include
universal and commercial banks, thrift banks, and rural and
cooperative banks.
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  Credit Cooperatives- With the primary objective of helping improve the

quality of life of its members. One of its aims is to provide goods and services
to its members to enable them to attain increased income, savings,
investments, productivity and purchasing power, and promote among
themselves equitable distribution of net surplus through maximum utilization of
economies of scale, cost-sharing and risk-sharing. In particular, credit
cooperatives promote and undertake savings and lending services among its
members. It generates a common pool of funds in order to provide financial
assistance to its members for productive and provident purposes. All
cooperatives regulated and supervised by the Cooperative Development
Authority (CDA). The BSP, in coordination with the CDA, shall prescribe the
appropriate prudential rules and regulations applicable to the financial service
cooperatives.
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  Commercial finance companies- they are organizations

without a bank charter that advances funds to businesses by
discounting notes receivable, making loans secured by
mortgage, or financing deferred-payment sales of commercial
and industrial equipment.
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