Sources of Long Term Finance
The Sources of Long Term Finance are those sources from where the funds are raised for a longer period of time, usually more than a year. Long term financing is required for modernization, expansion, diversification and development of business operations.
Generally, the companies resort to the sources of long-term finance when they have an inadequate cash balance and need capital to carry out its operation for a longer period of time.
Objectives of Long-term Financing
- To purchase new asset or equipment
- To finance the permanent part of the working capital
- To enhance the cash flow in the firm
- To invest in R&D operations
- To construct or build new construction projects
- To develop a new product
- To design marketing strategies or increase facilities
- To expand business operations
The long term financing could be done internally, i.e. within the organization or externally, i.e. from outside the organization.
The Internal Sources of long-term finance:
- Retained Earnings
The External Sources of Long Term Finance:
- Equity Capital
- Preference Capital
- Term Loan
Thus, the nature of business, the kind of goods produced and the technology being used in the organization, decides the source from where the finances could be raised.