UNIT-1-Long term Sources of Finance.pptx

1.Long-term financing represents those borrowings or loans which are offered for a period greater than one year.
 2.It can be done by issuing equity shares, debt financing, long-term loans, bonds, or leases. 
 3.Long-term finance is taken either for big projects, company expansion, or financing.
Usually, long-term financing deals with huge amounts.
4.The primary objective of long-term finance is to either fund the projects that are strategically benefiting the company or help in the expansion of business operations of the company. 

1. Long-Term Financing  Long-term financing represents those borrowings or loans which are offered for a period greater than one year.  It can be done by issuing equity shares, debt financing, long-term loans, bonds, or leases.   Long-term finance is taken either for big projects, company expansion, or financing. Usually, long-term financing deals with huge amounts. The primary objective of long-term finance is to either fund the projects that are strategically benefiting the company or help in the expansion of business operations of the company. 

2. Sources of Long Term Finance

3. 1. Equity Capital This equity loan or capital represents the fund raised by a company using either IPO (initial public offering) or a private investor. In both the public and private routes, the ownership of the company is diluted.   There is no preferential right given to the equity holders and they face the highest risk among all the shareholders.  Further, the equity holders receive a higher rate of return compared to the debt holders as they face maximum risk during repayment of their invested fund.

4. 2. Preference Shares : Another source of long-term financing for a corporation is the preference share capital. Investors invest in these forms of shares as they have the opportunity to receive returns.  The dividends are paid at a fixed rate and the full payment of funding is given to the preference shareholders when a company winds up their business.

5. 3.Debentures : Debentures are generally issued by an organization, having a fixed rate of interest, and thus the market fluctuations do not hamper the transactions for this source. These can be used for  purchasing bonds  or  real estate  whose value increases with time. Debentures can also be used as short-term financing in case of buying shares of a company or bank.

6. 4. Term Loans A  loan  that offers a fixed repayment period ranging from five to ten years, is termed the term loan. These are usually used to fund large projects or invest in capital expenditures such as purchasing machinery and equipment and renovations. Term loans can also be used for short-term needs such as repaying existing debt before its final repayment period.

7. 5. Retained Earnings It is also termed as plough-back profits. The source is a beneficial one as no charges are included in it. The profits that the company earns are used for financing its debt, paying off investors, or offering  stock options to its employees . Retained earnings can be used to expand the business after repaying all the dividends and interest charges.

8. Importance of Long-term Financing   Capital Expenditures Long-term financing is important when  investing  in capital expenditures such as developing infrastructure, purchasing plant and machinery, and expanding existing facilities. Expanding Business:  By providing the funds required to introduce  new products , penetrate new markets, or buy out rival companies, long-term financing makes it easier for firms to grow.  Liquidity and Stability: An organization’s stability and liquidity are enhanced by long-term funding. It lessens the need for short-term debt and lowers the chance of experiencing financial difficulties by ensuring a steady and dependable supply of financing over a longer period.   Manage Debt and Cost Efficiency Generally, long-term finance offers lower interest rates than short-term ones, thus the cost efficiency of the business can be improved along with providing less burden due to the financing over time Research and Development:    Long-term financing is beneficial in supporting the research and development centers of the business. For  innovation  and improvement of business operations, funding in R&D is crucial, and long-term investments enhance this procedure.

9. Advantages of Long-Term Financing Larger expenses are affordable : Long-term financing helps businesses to afford capital expenditures such as buildings and equipment. They can fulfill the long-term capital goal of the business.     Better Repayment Options:  Credibility Increases  Financial Flexibility:

10. Limitations of Long-Term Financing Higher Interest rates:  Risk of Losing Collateral:  Stricter Terms and Conditions: Maintaining Longer Duration Repayment Period:

11. Long-Term Financing – FAQs What factors do the investors look for while evaluating the eligibility of a business for lending long-term finance? What is the difference between long-term financing and short-term financing? What are the common sources for long-term financing? What are the example of long term financing?

12. THANK YOU Prepared by Dr.T.Kanimozhi