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3. Cost and selection of the source of funding

3.1 Cost of the source of funding

Most of the resources used by the company behave a cost. The company will try to get that source of funding that I suppose the average cost as low as possible, since, in this way, the benefit that will get with the investment will be greater.

The cost to the company the sources of funding is different according to the type of resource that is in use.

Source

Cost of

Own resources

The capital, the reserve, etc, do not provide an enterprise with the obligation to pay interest or dividend, but have a financial cost. This is equal to the opportunity cost, measured as the profitability that would be achieved with these resources using them on the outside of the company.

Long-term external resources

In all modes, there is always a contract and which specifies the conditions of the loan and the interest to pay.

Outside resources in the short term

spontaneous sources of funding tend to have zero cost. The credit from suppliers, in the event that offers a discount for paying in cash will have an implicit cost.

3.2 Selection of the source of funding

Criteria for the selection of funding to a company depend on several factors:

  • The type of investment.
    In the case of financing of current assets, the funding source may be short-term, while if the well must remain in the company for more than a year, the source of funding should be tambienun repayment period of more than one year.

    For investments involving the renewal of other goods demanding in the company that have become obsolete or present a high degree of deterioration, the use of the fund.


  • The degree of indebtedness that wants to keep the company.

    In the event that the company join decrease the degree of indebtedness has to seek sources of financing.

    The external sources will be used if the company wants to increase its economic profitability or may not dispose of own resources.


  • The cost of financing.
    The long-term sources tend to have a higher cost than short loop. As we have said, in some cases the financing of suppliers and some spontaneous sources can have a zero cost.

    Once the repayment period and ownership of resources, the criteria that should determine the font to be used will be the cost. The financial source will select the company that has a lower cost, as this will help to achieve the final objective to increase profits by reducing costs.

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