SOURCES OF LONG-TERM FINANCING

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1 Presenter: Prasannakumar Jitendra Nagar MBA(AB) 1st Year IABM, Bikaner

INTRODUCTION

Long term financing means raising of funds for long term

Long term finance is used to• Purchase fixed assets • Replacement of old machines • Purchase of new assets

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SOURCES OF THE LONG TERM FINANCE

SHARES: A share is a right to participate in the profits made by a

company while it is a going concern and in the assets of the company when it is wound up

The unit of a corporate ownership is a share

Two types of shares• Equity Shares • Preference shares

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EQUITY SHARES Equity shares are those shares which carry no preferential

right in the payment of dividend and refund of capital

Features

1. Risk capital

2. Variable market price

3. unstable dividend

4. Refund of captal

5. Right to control

6. Right to vote

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PREFERENCE SHARES

It is a share which carries preferential rights as to the payment of dividend at a fixed rate either free or subject to income tax and as to the payment of capital at the time of liquidation prior to equity shareholders

Features Claim on income Claim on assets No controlling power

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TYPES OF PREFERENCE SHARES

Cumulative and non cumulative: If the company has not paid dividend at fixed rate due to lack

of sufficient profit for that year then dividend go on in the subsequent years before any dividend is distributed among equity shareholders

Convertible and non convertible: Holder have the right to convert their shares in to equity shares

within fixed period of timeRedeemable and Irredeemable: The shares which would be repaid on a certain date in

accordance with the term of issue

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CONTD….

Participating and non-participating:

Carry the right to share in the surplus profit or assets of the company

Cumulative Convertible Preference shares:

Issue for development, diversification, modernisation, starting new projects

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DEBENTURES

It is a long term promissory note for raising long capital

The purchasers of debentures are called debenture holder

Features 1) Claim on income 2) Claim on assets 3) right to control 4) Refund of debt

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KINDS OF DEBENTURES

1. Registered and Bearer2. Secured and unsecured3. Convertible and non convertible4. Guaranteed 5. Collateral

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Term loans- term loans are sources of long term debt , they are generally obtained for financing large expansion, diversification project

features- 1) Maturity of the loan 2) Primary security for loan 3) Rate of interest

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LEASE FINANCING

Many businesses lease assets as an alternative to owning them Business has the use of the asset and incurs an

obligation either to pay off loan or meet monthly lease payment

At the end of lease term, residual value of asset belongs to lease

Leasing is a form of debt financing

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TYPES OF LEASES

1) Operating leases 2) Financial lease3) Sale and lease back

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Project financing- It is the scheme of financing of a particular unit of economic unit in which a lender is satisfied in looking in the cash flows

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VENTURE CAPITAL FINANCING

Definition- The early stage financing of new and young enterprises seeking to grow rapidly

Features of venture capital- 1) Long term horizon

2) Participation in management

3) high risk

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Types of venture capital financing Equity financing Debt financing Income notes

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