Question

From which source, a firm can raise long term funds when a loan is not provided by a commercial bank? Discuss its merits.

Answer 1

The government has established a number of financial institutions all over the country to provide finance to business organisations. They provide both owned capital and loan capital for long and medium-term requirements and supplement the traditional financial agencies like commercial banks. These are also called development banks.

Merits are listed as below:
- Financial institutions provide long-term finance, which is not provided by commercial banks.
- Many of these institutions provide financial, managerial and technical advice and consultancy to business firms.
- Obtaining a loan from financial institutions increases the goodwill of the borrowing company in the capital market.
- As repayment of loan can be made in easy instalments, it does not prove to be much of a burden on the business.
- The funds are made available even during periods of depression when other sources of finance are not available.