Which of the following is a medium-term source of finance for businesses?

A medium-term loan is indeed a medium-term source of finance for businesses, typically characterized by repayment terms ranging from one to five years. This type of financing is well-suited for purchasing assets or funding projects that have a relatively short payback period compared to long-term financing options such as mortgages, which usually span over many years, and are used primarily for real estate.

Medium-term loans provide businesses with the necessary capital while allowing them to manage cash flow effectively, as the repayment schedule is designed to accommodate the company’s revenue generation cycle. This form of finance can also help bridge gaps when short-term financing (like an overdraft) is insufficient, or when businesses need more stability than what might be provided by fluctuating revenues or short-term borrowing.

In contrast, retained earnings are the profits that a company has reinvested rather than distributed to shareholders, and while they can provide a source of internal financing, they are not classified under specific term categorization like loans. A bank overdraft, which offers flexibility in covering short-term cash flow issues, does not fit the medium-term financing definition due to its nature of being a short-term financial product.