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Limitations

i. Funds are generally available for short periods and its extension or
renewal is uncertain and difficult;
ii. Banks make detailed investigation of the company’s affairs, financial
structure etc., and may also ask for security of assets and personal
sureties. This makes the procedure of obtaining funds slightly difficult;
iii. In some cases, difficult terms and conditions are imposed by banks.
For the grant of loan.

Public Deposits

 The deposits that are raised by organizations directly from the public are
known as public deposits.
 Rates of interest offered on public deposits are usually higher than that
offered on bank deposits. Any person who is interested in depositing
money in an organization can do so by filling up a prescribed form.
 The organization in return issues a deposit receipt as acknowledgment of
the debt. Public deposits can take care of both medium and short-term
financial requirements of a business.
 The deposits are beneficial to both the depositor as well as to the
organization. While the depositors get higher interest rate than that
offered by banks, the cost of deposits to the company is less than the
cost of borrowings from banks.
 Companies generally invite public deposits for a period up to three years.
The acceptance of public deposits is regulated by the Reserve Bank of
India.

Merits

i. The procedure of obtaining deposits is simple and does not contain
restrictive conditions as are generally there in a loan agreement;
ii. Cost of public deposits is generally lower than the cost of borrowings
from banks and financial institutions;
iii. Public deposits do not usually create any charge on the assets of the
company. The assets can be used as security for raising loans from
other sources;
iv. As the depositors do not have voting rights, the control of the company
is not diluted.

Limitations

(i) New companies generally find it difficult to raise funds through public
deposits;