The term, sources of long term financing, means the entities from which the long term financing products and services could be availed.
These sources are extremely important as they help the various business entities to meet their long term financing needs.
Types of Sources of Long Term Financing There are various sources of long term financing:
Term Loan Lenders
Equipment Leasing Lenders
Share Capital Share capital is an important source of long term financing. This option is availed the most by limited companies. These companies sell their shares in the stock market and generate capital through that. There are two types of shares that are used for this purpose ? the ordinary shares and the preference shares.
Common Stocks The common stocks are useful sources of long term financing. They offer a whole lot of benefits. For example, unlike the preferred stocks and bonds in case of the common stocks the companies need not use their cash flows in the future in order to raise long term financing.
At times the companies assume that the stocks they issue in the share market are selling at more than their intrinsic value. In such circumstances the company can release lesser amount of shares to generate capital to address the situation.
Retained Profit The term, retained profit means a certain percentage of profit of a company that is not distributed among the shareholders as dividends. This is a chief source of long term financing. It is useful as well as the companies do not need to pay any interest for this form of long term financing.
Loan Capital The term loan capital refers to the money a company raises by taking loans from institutional or individual lenders. There are many forms of loan capitals:
Last Updated on : 1st July 2013