Long term financing is 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
Sources of Long Term Finance
1. Equity Capital
1) Whenever company needs funds, company issues shares to general public it is known as equity share. It is also called owner capital.
2) Dividends are non-mandatory.
3) Equity shareholders have right of income, control, pre-emptive right or right of liquidation.
4) Equity capital cannot have any maturity period.
5) In this situation company lose the control.
2. Internal Accruals
1) The internal accrual of firm consist of depreciation charges and internal retain and earning.
2) Depreciation represent the allocation of capital expenditure to various periods over which is the capital expenditure is expected to benefit of firm.
3) Retain and earnings are that proportion of equity earnings which are the ploughed back in the firm, because retain earnings are the sacrifices made by equity share-holders and they are referred to internal equity.
3. Preference Capital
1) Preference capital represents a hybrid form of financing. It takes some characteristics of equity and some characteristics of debenture.
2) Preference dividend is payable out of profit.
3) Preference dividend is not tax-deductible payment.
4) Preference dividend is not an obligatory payment.
5) It is middle security.
4. Term Loan
1) Firm obtain long term debt mainly by rising term loan or issuing debenture.
2) Term loans have been the primary sources of long term debt.
3) It is repayable in less than 10 years.
4) It is mainly rising for fixed assets and working capital.
5) Interest payment are mandatory
5. Debenture
Debenture is instrument for raising long term debt. It is viable alternative of long term finance.
Features of Debenture
1) Trustee
2) Security
3) Interest rate
4) Maturity period
5) Convertibility
