Describe the advantages and limitations of …

Merits are as :
1. Financial institutions provide long-term finance, which are not provided by commercial banks.
2. Obtaining loan from financial institutions increases the goodwill of the borrowing company in the capital market. Consequently, such a company can raise funds easily from other sources as well.

3. Besides providing funds, many of the institutions provide financial, managerial and technical advice and consultancy to business firms.

4. As repayment of loan can be made in easy installments, it does not prove to be much of a burden on the business; and

5. The funds are made available even during the periods of depression, when other sources of finance are not available.

Limitations are :

1. Financial institutions are follows rigid criteria for grant of loans. Too many formalities make the procedure time-consuming and expensive.

2. Certain restrictions such as restriction on dividend payment are imposed on the powers of the borrowing company by the financial institutions.

3. Financial institutions may have their nominees on the Board of Director’s of the borrowing company there by restricting the powers of the company.

Merits are as :

1. Financial institutions provide long-term finance, which are not provided by commercial banks.

2. Obtaining loan from financial institutions increases the goodwill of the borrowing company in the capital market. Consequently, such a company can raise funds easily from other sources as well.

3. Besides providing funds, many of the institutions provide financial, managerial and technical advice and consultancy to business firms.

4. As repayment of loan can be made in easy installments, it does not prove to be much of a burden on the business; and

5. The funds are made available even during the periods of depression, when other sources of finance are not available.

Limitations are :

1. Financial institutions are follows rigid criteria for grant of loans. Too many formalities make the procedure time-consuming and expensive.

2. Certain restrictions such as restriction on dividend payment are imposed on the powers of the borrowing company by the financial institutions.

3. Financial institutions may have their nominees on the Board of Director’s of the borrowing company there by restricting the powers of the company.