Critically clarify the sources of financing. Discuss its advantages and disadvantages?IntroductionAll businesses require finance to finance their business activity. This includes starting a business, for example paying for premises, new equipment; manage the business, such as having enough money to pay salaries of staff and suppliers on time, or expand the business, such as having funds to pay for a new branch. Whatever the purpose, choosing the right source of financing for each specific situation can be problematic. The source of financing for each company varies depending on the type, i.e. external or internal, or based on the time factor, i.e. short, medium term and long term. Type: External financing sources come from outside the company Internal financing sources come from within the company Time: Short term: refers to the current fiscal year Medium term: refers to the period of time greater than twelve months but less than five yearsLong term: refers to any period beyond the next five yearsShort termMedium termLong term TermInternal sourcesPersonal savingsSale of assetsReduction of retained equity profitsDeferred payments Sale of assetsRetained earningsExternal sourcesBank overdraftTrade creditBank loansCredit cardsDebt factoringState grants/grants LeasingHire purchaseSponsorshipsBank loansMortgagesBank loansShare issueOb bondsSOURCES INTERNAL FINANCEInternal sources of finance, usually short term, include:o Personal savings sPersonal savings is probably the simplest source of finance, it is the owners' savings which can be used to finance the business. It has the advantage of being quickly available and not producing interest. But it can also… middle of paper… achieve its goals. And although this type of loan requires less maintenance, it is more difficult for new businesses to obtain this type of financing. Short-term financing offers maximum flexibility for small businesses and faster access to cash when needed most. For medium to large-sized businesses whose focus is on future growth, long-term loans are more suitable. Conclusion Finances are an integral part of our daily lives and routines and are deeply rooted in our economic system. Small financial needs involve short-term financing; medium financial needs involve medium-term financing while high financial needs involve long-term financing. Finance is the lifeblood of an organization. All organizations, whether for-profit or non-profit, depend on this critical resource. All that matters is making the right choices at the right time when the need for financing arises.