What Are Medium Term Finances And What Are The Sources Of The Medium Term Finance?


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Nouman Umar answered
Medium term finance is defined as money raised for a period from one to five years. The medium term funds are required by a business mostly for the repair and modernizing of the machinery. There are different sources of raising the medium term finances. One of the major source for the medium term finances are the commercial banks. Commercial banks are now the most important source of providing medium term loans. Loans are generally given against some security of assets. Generally the loan is credited to the account of the borrower. He can withdraw the whole amount once or in installments. Traditionally the banks were mainly concentrating on providing short term loans. Now-s-days the term loans exceeding one year are being provided by the banks.

The second sources of raising the medium term finances are debentures. A company may raise apart of medium term capital by issuing debentures. A debenture is on instrument issued by a company acknowledge debt under its common seal. The terms and conditions of loan are written on the back of the document. Under Islamic modes of financing debentures have been replaced by term finance certificates. There is another source for raising the medium term finance which is from the loans given by the specialized credit institutions.

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