Sources of Long Term Financing for Business Organizations

Accounting for
Business

Table of Contents
INTRODUCTION ..........................................................................................................................3
MAIN BODY...................................................................................................................................3
CONCLUSION ...............................................................................................................................6
REFERENCES................................................................................................................................7

INTRODUCTION
Sources of finance refers to the various alternatives and options available to an
organisation for funding its financial requirements. The sources are mainly distributed as short
term sources of finances and long term sources of finances (Channuntapipat, Samsonova-Taddei
and Turley, 2020). In this report, the meaning and various sources for long term financing are
explained. It gives an overview of the sources of long term finances and benefits and risks
associated with each alternative of long term financing. The sources are helpful to public and
private business organisations in discovering which source of financing is the most suitable for
the business organisation.
MAIN BODY
The sources of finance on the basis of the area of generation are of two types, internal
sources and the external sources of finance. And on the basis of period, the sources of finance are
available in two different types:
1. Long term sources: The long term sources of finances are the one which are used by the
business organisation for a period of more than one year. These sources are collected
from the capital markets. Examples: equity shares, preference shares (Burnett and
Merchant, 2020).
2. Short term sources: These are the sources of finances which are utilised by the business
for a period of less than one year. Examples: working capital loans, commercial loans
(Cheng, 2019).
Incorporated and Unincorporated businesses: There are two different type of businesses
on the basis of the differentiation between business and owner’s identity. An incorporated
business, or a corporation, is a distinct body from the owner of the business and has natural
rights. Whereas, a business owner and an unincorporated business are identical, and the owner
personally bears all the business outcomes.
Owners capital Borrowed capital
It is the money which is invested by the
company internal management like
shareholders and directors.
It is the capital which is taken by the
organization through external sources like
loans from bank, bonds and debentures.
It is permanently invested in an enterprise. It is invested for fixed period of time.