What Are Medium Term Sources of Finance?
Medium term sources of finance are those that a company pays back in 1 to 5 years, and they include bank loans, hire purchases and leases. Some countries’ governments also offer special programs that offer medium term financing for companies, such as the Enterprise Finance Guarantee program in the United Kingdom. The purpose of such financing is to help companies expand or buy assets.
When companies choose loans for medium term financing, they have to pay interest and may also have to show they have enough assets to serve as security for the loan. A hire purchase is similar to a loan but is when a company buys a specific asset and pays installments to the seller; the interest rate is usually higher than for loans. Leasing is an option for companies who want to rent an asset and possibly someday buy out the lease.