Overview of Long Term Financing
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. It is different from short term financing.
Short term financing is normally used to provide money that has to be paid back within a year. The period may be shorter than one year as well.
Need of Long Term Financing
Long term financing is necessary for all kinds of business entities irrespective of their sizes or stature. These companies need to avail the long term financing resources from the lenders when they have to pay off a debt.
Following are some other requirements that could be met by availing long term financing:
- Increasing Facilities
- Expansion of Companies
- Buying Fixed Assets
- Buying Machinery
- Construction Projects on a big Scale
- Provide Capital for funding the Operations. This helps in adjusting the cash flow.
Types of Long Term Financing
The kind of long term financing that is provided to a particular company depends on its type. For example, the long term financing that is provided to a solo proprietorship is different from the long term financing that a partnership would receive.
Uses of Long Term Financing
Long term financing is used in separate ways by different types of business entities. The business entities that are not corporations are only supposed to use long term financing for the purposes of debt. However, the corporations can use long term financing for both debt and equity purposes.
Sources of Long Term Financing
Following are the main sources of long term financing:
Long Term Financing Products
The following products are provided as part of long term financing services:
- Debentures
- Interest Rate Swaps
- Secured Notes
- Forward Rate Agreements (FRA's)
- Unsecured Notes
- Interest Only Futures
- Convertible Notes
- Option on Future Contracts
- Fixed Deposit Loans
- Subordinated Debt
- Mortgages
- Preference Shares
- Eurobonds
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