A Detailed Review of External Long Term Finance Sources for Firms

This essay thoroughly evaluates external funding options for different types of business organizations, focusing on long-term finance. It highlights equity shares and venture capital as preferred sources for incorporated businesses, while bank loans and self-funding are emphasized for unincorporated entities. The essay also delves into capital and debt financing within sole proprietorships, partnerships, and private and public companies. The discussion encompasses the advantages and limitations of each source, providing a comprehensive understanding of long-term financial strategies for various business structures. Desklib provides this assignment as well as a variety of other solved assignments and past papers.

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Table of Contents
INTRODUCTION...........................................................................................................................3
MAIN BODY...................................................................................................................................3
Sources of external long term finance available to incorporated business entities......................3
Sources of external long term finance available to unincorporated business entities..................3
Capital and various forms of debts as external source of finance................................................4
CONCLUSION................................................................................................................................5
REFERENCES................................................................................................................................1

INTRODUCTION
Sources of funds are the gateways through which a business organization obtain funds
which is allocated in various aspects of business that increases the efficiency and size of the
business.
Following essay will be highlighting the external source of finance that can be availed for
a long period of time in context of both incorporated and unincorporated business entities.
MAIN BODY
Sources of external long term finance available to incorporated business entities
Equity shares
This is one of the widely availed source option by the business organization. Fixed
capital is availed through this source of finance which is a long term financing source
for the business. This funding sources is availed by giving equity to the provider of
funds that depicts the ownership of the organization (Zlotenko and et.al., 2019). From
this source organization can avail a large amount of cash if the goodwill and reputation
of the firm is good. Although, business idea and its financial position also have a major
role is obtaining the fund from this source as the investor may see scope for growth.
Venture capital
This is a viable option for the business organization who are above the level of start-up
and has established good position in the sector. This option can be used to obtain large
amount for expansion or growth of business. These funds are provided by the venture
capitalist who are professional in the investing field and has sound knowledge in the
financing field. This option not only provide funds but also the experience of the
investors that can uplift the organization to higher level. Venture capitalist more
involve in the management of the organization and provides a better understanding of
various aspect in the field.
Sources of external long term finance available to unincorporated business entities
Personal savings
This is a self funding source that can be used by the proprietor who owns the business.
This is one of the most common availed source by many unincorporated business

entities. Although, there are many issues with this funding that obstruct the proprietors
to obtain funds. One of the major drawback is the lack of fund to the owner which is a
measure issue. The loss on the investment has to be bear by a single entity that is
another issue in this type of funding source.
Business loans
There are many institutes which provides loan to the business enterprises at a
considerable rate of interest which is one of the most viable and easy to avail source of
funding for unincorporated organizations (Temelkov and et.al., 2018). These loans are
majorly availed through banks and credit unions as these are the most reliable sources
which provides funds with minimum interest rate. One of the limitation to this source of
funding is that it needs heavy documentation which can depict the authenticity of the
organization and the ability to repay the loan.
Capital and various forms of debts as external source of finance.
Capital
This source of finance is the investment of proprietor in business organization which is
accumulated in initial period. Although, this investment is availed many times after the
initial period as well, when there is a need for expansion.
In the sole proprietor firm, a single owner invest capital in the business whose loss and
profits both lies on their shoulder (Gill and et.al., 2019). Risk bearing is one a single
person which creates intense concern to the owner.
Partnership firms are those who have more than one proprietor who have signed the
partnership deed. In the partnership firms the loss and profit both are divided among all
the partners according top their contribution to the firm.
Public company avail capital from the public source that is by issuing shares for a
certain price. These companies give equity to the shareholders in the firm. Private
company are those who have not issued shares for public but it has many owners who
invest heavily in the business. These owners play a vital role in decision-making
process ion the organization where various alternatives are chosen for the betterment of
the business.
Debt financing

By availing this option, an organization raises funds which is promised to be paid back
on a determined future date with an amount of interest. There are many institutional
bodies that gives credit to the business after considering the necessary documentation.
A sole proprietorship firm can avail this source which is very easy for them if proper
documents are pertained by the firm (Mand and et.al., 2018). This is a slightly low
beneficial option for the firm as the amount is expected to be paid back with interest.
From the perspective of partnership this is not a widely availed option as these firms are
capable to raise funds from by themselves. Partnership firms majorly uses self funding
options whenever needed.
Public companies have an abundance amount of funds and a good source from which
more can be availed so the debt option is not preferred by these firms. On the other
hand, the private companies opts for debt financing but not frequently. This option is
availed by them only if there is an urgent requirement of funds.
CONCLUSION
From the above essay funding options has been evaluated thoroughly in term of
different types of business organizations. For incorporated business organizations,
equity shares and venture capital is described as one of the highly opted sources which
can be used to raise large amount of funds. Bank loan and self funding source are the
options from which unincorporated business entities can derive funds. Moreover, capital
and debt financing is discussed thoroughly in context of the sole proprietor, partnership
and private and public companies. This has enlightened the source thoroughly.

REFERENCES
Books and Journals
Mand, H.S. and et.al., 2018. The impact of bank financing and internal financing sources on
women’s motivation for e-entrepreneurship. International Journal of Gender and
Entrepreneurship.
Gill, A. and et.al., 2019. The Impact of Internal Financing Sources and Bank Financing on
Information Technology Investment. International Journal of Business &
Economics. 18(1).
Temelkov, Z. and et.al.,2018. Alternative financing sources supporting SMEs
growth. SocioBrains, International scientific refereed online journal with impact factor.
(52). pp.230-236.
Zlotenko, O. and et.al., 2019. Optimization of the sources structure of financing the
implementation of strategic guidelines for ensuring the economic security of investment
activities of an industrial enterprise. Tem Journal. 8(2). p.498.

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