1. Retained Earnings: Retained earnings refer to the process of retaining a part of net profit year after year and reinvesting them in the business. It is also termed as ploughing back of profit. An individual would like to save a portion of his/her income for meeting the contingencies and growth needs.
Similarly profit making company would retain a portion of the net profit in order to finance its growth and expansion in near future. It is described to be the most convenient and economical method of finance.
2. Lease Financing: Lease financing denotes procurement of assets through lease. For many small and medium enterprises, acquisition of plant and equipment and other permanent assets will be difficult in the initial stages. In such a situation Leasing is helping them to a greater extent.
Leasing here refers to the owning of an asset by any individual or a corporate body which will be given for use to another needy business enterprise on a rental basis. The firm which owns the asset is called ‘Lessor’ and the business enterprise which hires the asset is called ‘Lessee’.
The contract is called ‘Lease’. The lessee pays a fixed rent on agreed basis to the lessor for the use of the asset. The terms and conditions like lease period, rent fixed, mode of payment and allocation of maintenance, are mentioned in the lease contract.
At the end of the lease period, the asset goes back to the lessor. Alternatively lessee can own the asset taken on lease by paying the balance of price of asset concerned to lessor. Hence lease finance is a popular method of medium term business finance.