## Other Sources of Short / Medium-term Finance
### Inter-corporate Loans and Deposits (ICDs)
Organisations with surplus funds invest them short-term with other organisations. The rate of interest is higher than the bank rate and depends on the financial soundness of the borrower company. ICDs reduce dependence on bank financing.
### Commercial Papers (CP)
| Aspect | Details |
|---|---|
| What is CP? | An unsecured promissory note issued by a firm for short-term borrowing |
| Issuers | Highly rated corporate borrowers |
| Maturity | 7 days to less than 1 year |
| Denomination | Rs. 5 lakhs or multiples thereof |
Advantages of CP
1. Unsecured — no collateral and no restrictive conditions.
2. Continuous fund source — maturing CP can be repaid by issuing fresh CP (roll-over).
3. Customizable maturity — firms set the period to suit their needs.
4. Available in tight money markets — can be issued even when liquidity is tight.
5. Lower cost — generally cheaper than commercial bank loans.
Limitations of CP
1. Credit rating requirement — only highly rated firms can issue CP.
2. No flexibility in redemption — cannot be redeemed before, or extended beyond, maturity.
### Other sources
- Funds generated from operations — funds generated in a period increase working capital by the same amount; main components are profit and depreciation.
- Public Deposits — deposits from the public; a key source for well-established, large companies; used for short and medium-term financing.
- Bills Discounting — a supplier draws a bill of exchange directing the buyer to pay after a set period; the supplier can discount the bill before maturity for immediate funds.
- Bill Rediscounting Scheme — introduced by the RBI in 1970 to encourage use of bills of exchange and create a bill market; licensed banks can rediscount bills with the RBI.