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Sources of Long-Term Financing

The document discusses the main sources of long-term financing for businesses. These include shares (equity and preference), debentures, public deposits, retained earnings, term loans from banks for 3-5 years, and loans from specialized financial institutions like IFCI, IDBI, ICICI, UTI, and State Finance Corporations that provide long-term financing at reasonable interest rates. Long-term financing is needed for fixed assets, as well as permanent working capital.

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78 views2 pages

Sources of Long-Term Financing

The document discusses the main sources of long-term financing for businesses. These include shares (equity and preference), debentures, public deposits, retained earnings, term loans from banks for 3-5 years, and loans from specialized financial institutions like IFCI, IDBI, ICICI, UTI, and State Finance Corporations that provide long-term financing at reasonable interest rates. Long-term financing is needed for fixed assets, as well as permanent working capital.

Uploaded by

Ella
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We take content rights seriously. If you suspect this is your content, claim it here.
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SOURCES OF LONG-TERM FINANCING

A business requires funds to purchase fixed assets like land and building, plant and
machinery, furniture etc. These assets may be regarded as the foundation of a
business. The capital required for these assets is called fixed capital. A part of the
working capital is also of a permanent nature. Funds required for this part of the working
capital and for fixed capital is called long term finance.

The main sources of long term finance are as follows:

1. Shares:

These are issued to the general public. These may be of two types: (i) Equity and
(ii) Preference. The holders of shares are the owners of the business.

2. Debentures:

These are also issued to the general public. The holders of debentures are the
creditors of the company.

3. Public Deposits :

General public also like to deposit their savings with a popular and well
established company which can pay interest periodically and pay-back the
deposit when due.

4. Retained earnings:

The company may not distribute the whole of its profits among its shareholders. It
may retain a part of the profits and utilize it as capital.

5. Term loans from banks:

Many industrial development banks, cooperative banks and commercial banks


grant medium term loans for a period of three to five years.

6. Loan from financial institutions:

There are many specialised financial institutions established by the Central and
State governments which give long term loans at reasonable rate of interest.
Some of these institutions are: Industrial Finance Corporation of India ( IFCI),
Industrial Development Bank of India (IDBI), Industrial Credit and Investment
Corporation of India (ICICI), Unit Trust of India ( UTI ), State Finance
Corporations etc.
Source: http://docshare01.docshare.tips/files/4987/49872408.pdf

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