Sources of Long Term Finance for Business | Desklib

This article discusses the different sources of long term finance for businesses, including bonds, debentures, and equity share capital. It outlines the advantages and disadvantages of each source and provides insights into their suitability for different types of businesses. The article also includes references to recent research on finance and related topics.

Accounting For Business

Contents
Introduction .....................................................................................................................................1
MAIN BODY...................................................................................................................................1
Long term finance sources...........................................................................................................1
CONCLUSION ...............................................................................................................................3
REFERENCES................................................................................................................................4

Introduction
Long term finance is referred to the term of monetary which is needed to the corporation
for the purpose of long period of time. It includes the delegation as well as welfare. It assists to
thrive the company (Liu, 2018). The manager of the business enterprise can payoff the funds in
the organization in manner of bonds, loans, debentures, preference share capital, equity share
capital and so on. To starting the new business in the form of sole proprietor, partnership owner.
They needs the funds for both type short term and long term.
MAIN BODY
Long term finance sources
 Bonds: It has been presented by the institution of the financial, company sectors and
government sectors. It has been taken under the secured loan that maintain the all the
assets as well as securities in the form of mortgage. These bonds are presented for a
particular specified period of time and the business entity or company has to provide the
some profit in return to invest in them with the interest amount. The bondholder receives
the interest that is known as the coupon rate.
Advantages of the bond
1. To financing in the bond, the investors obtain the specific return with the principle
amount. It furnish the proper security of the return.
2. The bond's maturity is based on the completion of the particular given time period and
the corporation prefer to do the payment of the bondholder before than the stakeholder at
the time of liquidity.
3. It has ensured the stableness of the security in equivalence of the another shares. The
value of bond can be affected by the interest rate as well as inflation rate (Goodell, 2019).
4. It has high rating that is given by the credit rating company. It assists to furnish the
recommendation to investors during the time of selecting and issuing the bonds. It aids to
get the appropriate time of investing.
Disadvantages of the Bond
1. The company has to disburse large amount to purchasing the bonds. The price of the
bond has created the direct link with the reputation of the organization. Therefore, it has
faced lot of problem to find the bonds for the investors.
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2. If the corporation is about to be solvent and not able to pay the bondholders then there
would be possibilities to loss the return. The holder of the bond has right to collect at
leat some return.
3. The amount of the liquidity in these type of securities are very less because the company
can not fluctuate their amount frequently.
 Debenture: It involves the instrument in nature of debts. It assists to the business
organization to rise the money or funds from the individuals in numerical term for long
period. The corporation has to pay the interest amount as well as principle amount. It
contains the promissory note that are unsecured in nature and presented by the private
limited company without keeping any collateral securities.
Merits of the debentures
1. These kind of security has less risk so investors prefer to invest in these instruments.
2. The rights of equity shareholders and preference shareholders do not affect by the
debenture. It is very simple way to control the management because the debenture
holders do not have votings rights (B.N.E., 2018).
3. The government of the nation furnish the tax deductions benefits for do the payments of
the interest to debenture holder.
4. It is suitable for the investors for observing the transaction's transparency and safety of
the returns.
Disadvantages of the debentures
1. The corporation of business has authorized the limitations of the funds that can be raised
by the company. The capacity of the organization has been deducted after a given time
period to arrange the funds in upcoming time.
2. If the business enterprise suffer with the issues that are related with the financial shortage
and wish to close the company so the organization would pay to the debenture holder
before than the preference share holders (Nassani and et al., 2019).
 Equity share capital: It consists the invested capital that has be done by the business
corporation at the initiation stage of the company. The human being who has allotted the
shares is called equity shareholder. It is more suitable source to raise the funds from the
ordinary public when the organization needs large amount investment by issuing the
initial public offer.
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Merits of the Equity shares
1. The votings rights is given to the owner of the organization. Through the voting, the
shareholder can select the directors as well the other members (Althelaya, El-Alfy and
Mohammed, 2018)
2. . They have authority to choose them during the meeting of the board.
3. If the profitability of the business entity will maximize then they can capable to achieve
the extra dividend. There has been created a link amongst the rewards and the earnings.
4. The organization have rights to generate the share to the bonus holders from the
earnings of the company.
Demerits
1. There are several difference reasons to increase the cost of shares such as reducing the
taxes, payments of the dividends. The another reason of high cost is that the price of the
share has maximized through expenditures such as brokerage, underwriting commission.
2. The business corporation has suffered number of issues of the insider trading. It may
occur when the worker of the corporation spread the internal information related to the
business and the share cost. It will impact on the competitive advantages.
CONCLUSION
From the above report, it can be concluded that there are availability of the number of
sources of long term finance. These sources are provided by the outsiders such as general public
and so on. Every factors of finance has their own nature it mean they have their advantages and
disadvantages as well. For instance, debentures are come under the secured loan in comparison
to the other sources of the finance. It contains very low risk. The capital of share of equity is
fixed source of the financing.
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REFERENCES
Althelaya, K.A., El-Alfy, E.S.M. and Mohammed, S., 2018, April. Evaluation of bidirectional
LSTM for short-and long-term stock market prediction. In 2018 9th international conference on
information and communication systems (ICICS). (pp. 151-156). IEEE.
Finance, B.N.E., 2018. Long-Term Electric Vehicle Outlook 2018. Bloomberg NEF: New York,
NY, USA.
Goodell, J.W., 2019. Comparing normative institutionalism with intended rationality in cultural-
finance research. International Review of Financial Analysis, 62. pp.124-134.
Liu, J., 2018, September. Research on internet finance: Its business models and development
trend. In Proceedings of the 2nd International Conference on Business and Information
Management. (pp. 169-172).
Nassani and et al., 2019. The impact of tourism and finance on women empowerment. Journal of
Policy Modeling, 41(2). pp.234-254.
(Althelaya, El-Alfy and Mohammed, 2018) (B.N.E., 2018)(Goodell, 2019)(Liu, 2018) (Nassani
and et al., 2019)
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