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
  • Debentures

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.

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