By Funso Dare
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The identified sources of business finance are diverse. We have the short-term, medium and long-term sources. Usually, sources of business financing that are available for a given period from one to five years are classed as intermediate or medium-term finance. Examples of medium term financing includes term loans, lease finance and hire-purchase finance among others.

Term loans constitute a major source of intermediate financing. Term loans are repayable in periodic installments over the entire loan period. Term loans could come from commercial banks and some specialized financial institutions like Pension Funds institutions. Term loans are only backed up with a collateral security which must cover the value of the loan plus the proposed interest payable thereon.

Collateral security is quite important because no one is ready to grant naked loans again. But, collateral security should never be viewed by lenders as a source of repayment but only something to fall back on if the expected source of repayment should fail. There are certain restrictions placed on borrowers on a term loan arrangement. When these restrictions are not followed, the loan become due immediately and payable, this is referred to as the protective covenants of a loan agreement.

Lease finance occupies a central place in medium-term financing. A lease is described as a contract whereby one party known as the lessor gives to another party referred to as the lessee, the use and possession of an equipment or an asset for a specified time in return for a fixed periodic payments. In this case, the lessor retains legal ownership of the leased property while the lessee only has possession and no legal right to the title of the property being leased. A pertinent question to ask at this juncture is why lease is considered as a financing source. A lease is categorized as a financing source in the sense that the lessee would have had to raise money to purchase the leased equipment or asset if the lease option is not available. The money which would have been raised would now be available for long-term investment by the investor or firm. A lease arrangement can come in the form of a Financial lease or an Operating lease. The Financial lease is a type of lease financing where the lessor transfers virtually all the risks and benefits of ownership of an asset to the lessee, The lessee in this case would be responsible for maintenance and insurance of the said equipment. The intention here is for the lessee to emerge as the eventual owner of the leased property. The financial lease is thus a non-cancellable contractual commitment whereby the lessee is bound to make series of instalmental payments to the lessor for the use and possession of an asset or property. On the other hand, the Operating lease is a cancellable lease, the lease arrangement can be cancelled after giving proper notice to the lessor at any point during the lease period. In an Operating lease, the lessor is primarily responsible for the maintenance of the asset and its insurance. In all, lease finance has now gain ground as a creative financing alternative for the acquisition of capital assets for productive activities or investment. Lease finance is quite beneficial to the economy and contributes to the socio-economic development of the nation as a whole. It is even more relevant now due to the current economic hardship prevalent in the country where outright purchase of equipments or properties is increasingly getting more difficult or challenging for an average investor or firm.

Hire purchase finance is another good source of medium term finance. Lease finance and hire purchase finance are somewhat related but they are quite different in practice. A lease is different from hire-purchase contract because in a lease arrangement, the title to the asset rested with the lessor and cannot be automatically transferred to the lessee even after the asset’s cost or value has been recouped. But, in hire purchase arrangement, the hirer can automatically becomes the owner of the property or asset after he or she has rounded up the instalmental payments. Hire purchase finance is also beneficial to the economy in that it offers the hirer access to the equipment or property even though they do not have the full money required to purchase the property. Under hire purchase, the hirer who makes use of the property and actually in possession of the property is allowed to make a part payment and later balance up after making a series of instalmental payments.