Sources of long term finance are as follows:
1. By Issue of shares –
The capital raised by issuing shares is known as share capital. The owners of these shares are called shareholders.
Shares are of two types –
- Equity Shares – If the shareholders are not entitled to a fixed dividend in preference to others or if there is no prior right for the capital to be repaid, the share capital is treated as equity shares.
- Preference Shares – These are the shares which enjoy a fixed rate of return and get preferential priority while receiving dividends/repayment of capital at the time of liquidation.
2. Issue of Debentures –
Debentures are instruments for raising long term debt capital. Interest is paid on the debentures regularly at a fixed rate as it is done for a loan taken by the company.
3. Public Deposits –
The amount deposited by the public with the company for a specified period at a predetermined rate of Interest. These are the source of finance. These are cheaper than bank loans for the company and fetch interest at rates higher than the deposits with the bank.
4. Reinvestment of Earnings –
These are the direct share of earnings from a direct investment that is not distributed to owners. These earnings are recorded in the current account of the balance of payment
5. A loan from Commercial Banks –
Commercial Banks also play an important role in raising funds of a big industrial unit. The loans are provided to the companies to fulfill their various objectives.
6. Institutional Finance –
To provide long term finance to business organizations, the central and state government have established various specialised financial institutions, These institutions also provide marketing services, etc.,
