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Long term financingis a form of financing that is provided for a period of more than a year.

Long term financing services are provided to those business entities that face a shortage of

capital.There are various long term sources of finance.

Purpose of Long Term Finance:

To finance fixed assets.

To finance the permanent part of working capital.

Expansion of companies.Increasing facilities.

Construction projects on a big scale.

rovide capital for funding the operations. This helps in adjusting the cash flow.

The corporations can use long term financing for both debt and e!uitypurposes.

"ources of Long Term #inancing$

#ollowing are the various sources of long term finance are as follows %

Shares$ These are issued to the general public. The holders of shares are the owners of thebusiness. These may be of two types$

E!uity shares and

reference shares.

Debentures$ These are also issued to the general public. The holders of debentures are the

creditors of the company.

Public Deposits$ &eneral public also likes to deposit their savings with a popular and well

established company which can pay interest periodically and pay'back the deposit when due.

Retained Earnings$ The company may not distribute the whole of its profits among its

shareholders. It may retain a part of the profits and utili(e it as capital.

Term Loans from Banks$ )any industrial development banks* cooperative banksand commercial banksgrant medium term loans for a period of +', years.

A Debt financingThe act of a business raising operatingcapitalor other capitalby borrowing. )ost often* th

s refers to the issuanceof a bond*debenture* or other debtsecurity. In exchange for lendin

gthe money* bondholdersand others become creditorsof the businessand are entitled to

the paymetof interestand to have their loan redeemedat the end of a given period.

'Financial le!erageis the degree to which a company uses fixed'income securities such

as debt and preferred e!uity. The more debt financing a company uses* the higher

its financial leverage.

a- onds

The interest rate companies pay bond investors is often less than the interest rate they

would be re!uired to pay to obtain a bank loan.

Issuing bonds also gives companies significantly greater freedom to operate as they see

fit ' free from the restrictions that are often attached to bank loans.

b- ank loans

/ebt 0dvantages

http://finance.mapsofworld.com/finance/http://finance.mapsofworld.com/corporate-finance/management/working-capital.htmlhttp://finance.mapsofworld.com/financial-report/basic/statement-of-cash-flows.htmlhttp://finance.mapsofworld.com/equity/http://finance.mapsofworld.com/financial-market/share/http://finance.mapsofworld.com/debenture/http://finance.mapsofworld.com/corporate-finance/management/public-deposits.htmlhttp://finance.mapsofworld.com/banks/commercial-banks.htmlhttp://financial-dictionary.thefreedictionary.com/operating+capitalhttp://financial-dictionary.thefreedictionary.com/Capitalhttp://financial-dictionary.thefreedictionary.com/Borrowhttp://financial-dictionary.thefreedictionary.com/Issuehttp://financial-dictionary.thefreedictionary.com/Bondhttp://financial-dictionary.thefreedictionary.com/Debenturehttp://financial-dictionary.thefreedictionary.com/debt+securityhttp://financial-dictionary.thefreedictionary.com/Lendhttp://financial-dictionary.thefreedictionary.com/Lendhttp://financial-dictionary.thefreedictionary.com/Moneyhttp://financial-dictionary.thefreedictionary.com/Bondholderhttp://financial-dictionary.thefreedictionary.com/Creditorhttp://financial-dictionary.thefreedictionary.com/Paymenthttp://financial-dictionary.thefreedictionary.com/Interesthttp://financial-dictionary.thefreedictionary.com/redeemhttp://finance.mapsofworld.com/corporate-finance/management/working-capital.htmlhttp://finance.mapsofworld.com/financial-report/basic/statement-of-cash-flows.htmlhttp://finance.mapsofworld.com/equity/http://finance.mapsofworld.com/financial-market/share/http://finance.mapsofworld.com/debenture/http://finance.mapsofworld.com/corporate-finance/management/public-deposits.htmlhttp://finance.mapsofworld.com/banks/commercial-banks.htmlhttp://financial-dictionary.thefreedictionary.com/operating+capitalhttp://financial-dictionary.thefreedictionary.com/Capitalhttp://financial-dictionary.thefreedictionary.com/Borrowhttp://financial-dictionary.thefreedictionary.com/Issuehttp://financial-dictionary.thefreedictionary.com/Bondhttp://financial-dictionary.thefreedictionary.com/Debenturehttp://financial-dictionary.thefreedictionary.com/debt+securityhttp://financial-dictionary.thefreedictionary.com/Lendhttp://financial-dictionary.thefreedictionary.com/Lendhttp://financial-dictionary.thefreedictionary.com/Moneyhttp://financial-dictionary.thefreedictionary.com/Bondholderhttp://financial-dictionary.thefreedictionary.com/Creditorhttp://financial-dictionary.thefreedictionary.com/Paymenthttp://financial-dictionary.thefreedictionary.com/Interesthttp://financial-dictionary.thefreedictionary.com/redeemhttp://finance.mapsofworld.com/finance/

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/ebt financing allows you to pay for new buildings* e!uipment and other assets used to grow

your business before you earn the necessary funds. This can be a great way to pursue an

aggressive growth strategy* especially if you have access to low interest rates.

Closely related is the advantage of paying off your debt in installments over a period of time.

1elative to e!uity financing* you also benefit by not relin!uishing any ownership or control of the

business.

/ebt /isadvantages

The most obvious disadvantage of debt financing is that you have to repay the loan* plus

interest. #ailure to do so exposes your property and assets to repossession by the bank.

/ebt financing is also borrowing against future earnings. This means that instead of using all

future profits to grow the business or to pay owners* you have to allocate a portion to debt

payments

B E"uit# Financing

Is the method of raising capitalby selling company stockto investors. In return for

the investment* the shareholders receive ownership interests in the company.

E!uity financing involves not just the sale of common e!uity* but also the sale of other e!uity or

!uasi'e!uity instruments such as preferred stock* convertible preferred stock and e!uity units

that include common shares and warrants.

E!uity 0dvantages

E!uity financing doesn2t have to be repaid. lus* you share the risks and liabilities of companyownership with the new investors. "ince you don2t have to make debt payments* you can use

the cash flow generated to further grow the company or to diversify into other areas.

)aintaining a low debt'to'e!uity ratio also puts you in a better position to get a loan in the

future when needed.

It2s less risky than a loan because you don2t have to pay it back* and it2s a good option if you

can2t afford to take on debt.

3ou tap into the investor2s network* which may add more credibility to your business.

Investors take a long'term view* and most don2t expect a return on their investment

immediately.3ou won2t have to channel profits into loan repayment.

3ou2ll have more cash on hand for expanding the business.

E!uity /isadvantages

y taking on e!uity investment* you give up partial ownership and* in turn* some level of

decision'making authority over your business

Debt $ersus E"uit#

onds are debt* whereas stocks are e!uity. This is the important distinction between the

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two securities. y purchasing e!uity 4stock- an investor becomes an owner in a corporation.

5wnership comes with voting rightsand the right to share in any future profits. y purchasing

debt 4bonds- an investor becomes a creditorto the corporation 4or government-. The primary

advantage of being a creditor is that you have a higher claim on assets than shareholders do$

that is* in the case of bankruptcy* a bondholder will get paid before a shareholder. 6owever* the

bondholder does not share in the profits if a company does well ' he or she is entitled only to

the principalplus interest.

To sum up* there is generally less risk in owning bonds than in owning stocks* but this comes at

the cost of a lower return.

C. 6ybrid #inancing

7. reference "hares

8. Leases

There are two primary types of leases$ capital and operating.

%apital leasesare non'cancelable* and must meet at least one of the following

re!uirements$

'the lease transfers ownership of the asset* the lease contains a bargain purchase option

'the duration of the lease is 9,: or more of the asset2s expected economic life

'and;or the lease is worth at least it is accounted for as a rental expense in what is known as ?off balance sheet

financing.?

0 sale and leasebackis an arrangement where an entity sells one of its assets to a

lender and then immediately leases it back for a guaranteed minimum time period. y

doing so* the entity obtains cash from the sale of the asset that it may be able to use

more profitably elsewhere* while the lender obtains a guaranteed lease. The downside

from the perspective of the seller is that the seller can no longer charge off any

depreciation expense related to the asset in !uestion* which reduces the related tax

benefit.

0 sale and leaseback is typically used for a building* but can also be arranged for other

large assets* such as production machinery.

Direct Lease0 leasearrangementbetween a non'manufacturer or non'dealer and

a customerwherein the lessorac!uires e!uipmentfor the purpose of leasingit and

generating revenuethrough interest payments.

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