For the purpose of raising long term finance, the companies, corporations and governments issue long term securities like bonds, equities and derivatives. There are various long-term debt products that provide long term financing to the corporations. The short-term funding to the firms is generally provided by the loans and lines of credit given by banks and other financial institutions.
Raising long term finance by firms can be done from various sources. The business can issue shares, debentures and other long term bonds in the capital market.
Long term financing actually provides funds to the capital deficit businesses for a period that is over 1 year. The prime difference between long term financing and short term financing is that short term financing offers funds for a period that is less than 1 year. For both the new businesses and established corporations, it is common that they have some kind of debts all through their lives. Hence raising long term finance for the business becomes important for the firms.
The long term financing can provide funds for various requirements like large capital equipment, fixed assets, expansion of business and facilities and large scale construction projects.
The firms can also raise long term finance from the borrowed capital. Such capital is mainly borrowed from the institutions or individuals and this practice includes issuing debentures. The various debentures that the company issues in order to collect long term finance are - debentures to bearer, redeemable and irredeemable debentures and hardcore debentures.
The other sources of long term financing for a business are: term loans, equity capital, debentures, preference capitals and internal accruals.
Various types of long term finance products include:
- Debentures
- Convertible notes
- Secured and unsecured notes
- Fixed deposit loans
- Eurobonds
- Mortgages
- Interest rates swaps
- Interest only futures
- Forward rate agreements
- Option on future contracts
- Subordinated debt
- Convertible notes
- Preference shares
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