Long term sources –
The sources of funds required for more than 5 years.
Example – shares, debentures, institutional loans, lease financing, foreign investment.
These are of following types:
(i) Issue of Shares –
The capital raised by issuing shares is called share capital.
1. Equity Shares –
The equity shareholders are not entitled to a fixed dividend in preference to others. They get dividend after all the preferential shareholders obtain their share.
2. Preference Shares –
These are the shares which enjoy a fixed rate of return and get preferential or special priority while receiving dividend repayment at the time of liquidation.
(ii) Issue of Debentures –
Debentures are common securities under borrowed fund capital.
Debentures are instruments for raising long term debt capital.
Debentures are of following types:
1. Redeemable and non – redeemable debentures.
2. Convertible and non – convertible debentures.
3. Secured and unsecured debentures.
4. Registered and Bearer debentures.
5. Zero per cent interest debentures.
(iii) Institutional loans –
To provide long term finance to business organizations, the central and state government have established various specialised financial institutions. These institutions also provide consultancy, guidance and assistance to new business enterprises in their formation, expansion and modernisation.
These institutions are:
1. Industrial Finance Corporation of India.
2. Industrial Credit and Investment Corporation of India.
3. Industrial Development Bank of India.
4. Industrial Investment Bank of India.
5. Small Scale Industry Development Bank of India.
6. State Finance Corporation.
7. State Industrial Development Corporation.
8. Life Insurance Corporation of India.
9. General Insurance Corporation of India.
10.Unit Trust of India.
11.Export-Import Bank of India.
12.Venture capital fund institutions
(iv) Retention of funds –
Usually, a company does not distribute its entire profits as dividend to shareholders. This is considered a cushion of security because it provides support in times of need for financing.
(v) Lease financing –
a Lease is a contract wherein the owner of an asset grant after the party the right to use the asset in return for a periodic payment. In other words, the lease is a renting of assets for a specified period. The owner of the asset is called the Lessor, whereas the user is known as Lessee. Lease financing is an important source of finance for modernisation and diversification of the firm. Lease financing is suitable and popular for those assets where technological changes are common. For example, computers and electronic equipment.
(vi) International Financial Resources –
It plays an important role in meeting the long term financial needs of the business enterprise.
Important sources are:
1. Foreign loans –
Under these loans, commercial and service loans are included, which can be obtained at a concessional rate of interest with long term maturity. These are the International Monetary Fund, Indian Assistance Association, Asian Development Bank, World Bank, etc.
2. Foreign Investment –
In India, foreign investment is found in the form of foreign direct investment. FDI means subscription of participation is shares and debentures of Indian companies by foreign investors.
3. Non – Resident Indians –
The persons of Indian origin who live in foreign countries are known as NRIs. The share of NRI deposits in foreign capital is more than 30% and this is increasing continuously.
