Understanding sources of finance is crucial for business operations, categorized by their duration. Long-term sources are typically used for investments lasting more than five years, such as purchasing fixed assets or funding major expansion projects. Among the options, Equity shares are a primary long-term source of finance. They represent ownership in the company and do not have a maturity date, meaning the capital raised through them remains with the company indefinitely, making them ideal for long-term capital requirements.
Conversely, the other options are short-term. Trade credit is a short-term financing arrangement where suppliers allow customers to pay for goods or services at a later date, usually within 30-90 days. A Bank overdraft is a very short-term, flexible borrowing facility that allows a company to overdraw its bank account up to an agreed limit, typically repayable on demand. Commercial paper is an unsecured promissory note issued by corporations, generally maturing in 270 days or less, making it a short-term debt instrument. Thus, only equity shares provide the permanent capital characteristic of long-term finance.