External Sources of Long Term Finance for Sole Traders, Partnership Firms and Companies

This report discusses the external sources of long term finance for sole traders, partnership firms and companies. It covers venture funds, debentures, bank credit, hire purchase, grants and shares. The advantages and disadvantages of each source are also discussed.

Accounting for
business

Table of Contents
INTRODUCTION ..........................................................................................................................3
TASK...............................................................................................................................................3
Sources of long term finance.......................................................................................................3
CONCLUSION ...............................................................................................................................6
REFERENCES................................................................................................................................7

INTRODUCTION
Commercial enterprise accounting is the systematic recording, reading, interpreting and offering
of economic data. Accounting can be completed via one individual in a small enterprise, or with
the aid of unique teams in large companies (Al-Htaybat and et.al, 2018). In this report discuss
about the external sources of finance that are needed for sole trader, partnership firm and
company.
TASK
Sources of long term finance
Long-term finance can be described as any economic instrument with maturity more than
12 months consisting of venture capital, debenture and bank loan.
Venture Fund: It is the part of private stock and a type of lending that consumers offer to
startup groups and small groups which may be believed to have lengthy-term boom capability.
Benefits:
 Through venture capital can borrow huge amount of money.
 It provides guidance, consultation and decision in business.
 Task capitalists provide an opportunity for expansion.
 It is useful in building networks.
 There is no responsibility to repay the money.
 Assignment capitalists are normally sincere.
 It can help with hiring and constructing a crew.
Disadvantages:
 Approaching a mission capitalist can be tedious.
 Mission capitalists normally take a more time to take a decision.
 Locating buyers can distract a commercial enterprise proprietor from their commercial
enterprise.
 Sizeable due diligence is needed.
 The enterprise is expected to develop hastily (Bell and et.al, 2018).
Debentures: It is a another form of obtain money through long term finance. It is much less
highly priced compared to the cost of equity or preference capital because it charges fixed

interest rate. Debenture means company can obtain money from general public and payable in
future. A company can issue various forms of debentures which are depend on their qualities.
Advantages:
 It is the best ways to obtain the money as compared to equity or preference shares.
 It can not participate in the company voting rights.
 It can be matured when the company has more retained profits.
 It helps in tax saving because the interest charged on debenture treated as expenses and
showed in income and statement account (Fullana and Ruiz 2020).
Disadvantage:
 The interests have to paid at regular interval whether company earns profit or not.
 It gives less return, if the company wants more benefit then it is not suitable option.
 It put a burden on the company profit, if the profit of the company fluctuate then it
become risky of an organisation.
Bank Credit: Credit are quantities of cash lending from banks or different economic academics
for huge or lengthy term commercial enterprise initiatives inclusive of the improvement or
expansion of the commercial enterprise. Credit may be substituted with the aid of other
possibility sources of finance which can be benefited for business.
Advantages;
 Huge amounts can be obtained.
 It is benefited for long-term investments.
 The Interest charges are lesser than for bank overdrafts and are set earlier.
Disadvantage:
 Security is wanted.
 The quantity borrowed need to be repaid on the agreed date
 It does not suitable for ongoing expenses.
 Loans will have an effect on a corporation’s gearing ratio.
 It is very lengthy process so that small organisation can not be obtained money from bank
loan (Husein, 2018).
Hire purchase: Lease buy lets in a commercial enterprise to apply an asset with out paying the
total quantity to acquire the property. The hire purchase company buys the asset on behalf of the
organisation and offers the business the only utilization of the asset. The commercial enterprise

on its component must pay month-to-month payments to the lease purchase company amounting
to the full price of the asset and costs of the rent buy company. On the end of the charge length
the business has the choice of shopping for the asset for a nominal price (Morais, Fialho and
Dionísio 2018).
Benefits:
 The commercial enterprise profits use of the asset earlier than paying the asset’s value in
complete.
 The payment is made in affordable installments.
 Rent buy installments are taxable fees.
 At the stop of the bills possession of the asset is transferred to the business enterprise.
 Bills can be crafted from the asset’s usage and return of the asset.
Disadvantages:
 Possession remains with the lender till the remaining charge is made.
 The asset will value the employer extra than the unique rate.
 If payments are not made on time the lender has the proper to repossess the asset.
 If the asset is required to get replaced due to breakdown or because it's far out-
dated in which case the fee may additionally additionally nonetheless must be made
and the asset replaced.
Grants: Offers are funding given to corporations for packages or offerings that advantage the
community or public at big. It can be given by means of the authorities or private firms.
Benefits;
 It does not need to be paid again.
 It does not occur any charges to obtain the money through grants.
Disadvantages:
 Presents are given on positive regulations and legal guidelines imposed by way of the
government.
 All the enterprises are not obtain the money from grants.
Shares: The another form of obtain money through issue of equity shares and preference shares.
Both of the shareholders can attend the meetings of the company. There is no need to pay the
money because it is a owner of the company. Through shares company can obtain large amount
of money. There is no need to collateral security for issuing equity shares and preference shares.

When the company issuing shares then follows many rules and regulations. If the company does
not earn sufficient profit it will have right to pay the fixed dividend of preference share holders.
CONCLUSION
In the above report discussed about the external long term sources of finance. There are
various forms are available to obtain the money. The sole traders, partnership firms and company
consider various factors such as risk, interest rate and fluctuations rate when borrow the funds.

REFERENCES
Books and Journals
Al-Htaybat and et.al, 2018. Educating digital natives for the future: accounting educators’
evaluation of the accounting curriculum. Accounting Education, 27(4). pp.333-357.
Bell and et.al, 2018. Current value accounting and the simple production case: Edbejo and other
companies in the taxi business. In Toward Greater Logic and Utility in Accounting (pp.
256-291). Routledge.
Fullana, O. and Ruiz, J., 2020. Accounting information systems in the blockchain era. Available
at SSRN 3517142.
Husein, U.M., 2018. Islam, communication and accounting. Journal of Islamic Accounting and
Business Research.
Morais, A.I., Fialho, A. and Dionísio, A., 2018. Is the accounting quality after the mandatory
adoption of IFRS a random walk? Evidence from Europe. Journal of Applied Accounting
Research.