What Are The Sources Of Long Term Finance?

There are different sources of long term finance which can be used to generate the finance for the business for long period of time.  One of the most commonly used is Equity Shares, the issuing of equity shares is the most important source for raising the long term capital by the company. These shares are the best source because they are only paid back on winding up of company. Equity shareholders are the real owners of the company. Equity shareholders get dividend when the company is earning profits. A company can now issue different classes and kinds of shares to raise its owned capital.  The kind of shares will be issued according to the needs of the company and preferences of the investors. There are two types of shares one is right shares. A public company may increase its subscribed capital by issue of right shares. Right shares are offered to the shareholders in proportion to their present holding often at a price which is less than the currently quoted price on the stock exchange.

The other source is debentures a company also raises long term finance through borrowing. These loans are raised by the issue of debentures. A debenture is an instrument issued by a company to acknowledge the loan taken by the company under its common seal.

There are different sources  which the company can gather through different sources. One of the methods is loans from industrial and financial institutions. A company also meets its long and medium term capital requirements from the industrial and financial institutions like Industrial Development Bank of Pakistan, PICIC commercial bank and National Investment Trust.  Such financial institutions help in promoting new companies, expanding and development of existing companies, providing underwriting facility, provision of local and foreign currency for the purchase of machinery. The second source which can be availed by the company is leasing.

A leasing is now a popular method of long term finance. It is gradually gaining ground in developing and developed countries of the world.  It is a contract for the hire of a specific asset. A business may get plant, equipment and land on along term hire purchase. The business in this way has the use of assets which it does not own. It has however to pay regular payments to the lessor under the agreement. The advantages claimed for leasing are that there is no pressure on existing resources of the business. It assets are also not tied up as security of loan.  The rent is paid from income generated by the use of asset.

Ordinary shares
preference shares
debentures
bank loans
grants
leasing
retained earnings.
Eurobonds
mortgages
convertible loan stock

etc