LSC UoS BA Business: Analysis of Long-Term Finance Sources

This report provides a critical analysis of various long-term finance sources available for businesses. It begins by defining incorporation and differentiating between unincorporated and incorporated business entities. The main body then delves into the evaluation of several external financing options, including debentures, long-term bank loans, venture capital, and leasing. The analysis covers the characteristics, advantages, and disadvantages of each source, offering insights into their suitability for different business structures. The report highlights the benefits of debentures, such as being a cheaper source of capital, and explains the role of long-term bank loans in providing flexibility. It also discusses venture capital and business angels, particularly in the context of start-up businesses, and examines lease financing as a means of conserving cash. The report concludes with a comprehensive list of references, including books and journals, which supports the information presented. The report aims to provide a comprehensive overview of the key financial instruments and their implications for business growth and expansion.

Individual project

Table of Content
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MAIN BODY...................................................................................................................................3
Meaning.......................................................................................................................................3
Evaluation of Various Long Term Sources of Finance...............................................................3
REFERENCES................................................................................................................................1

MAIN BODY
Meaning
The term incorporation is used for referring to the legal procedure that is followed while
forming a company or corporate entity. Business incorporation of business is done for the
purpose of creating separate legal entity of such business (Kartavy, and et.al., 2021).
Unincorporated Business Entities are those businesses (Limited Liability Partnership, Limited
partnership, Limited Liability Company, Trust Entity or other business entities) that have not
been incorporated under Law but is established & managed according to State law. Incorporated
Business Entities refers to such business entities that are registered and have a separate legal
entity. Such businesses are registered within a state law.
Evaluation of Various Long Term Sources of Finance
Debentures: Debentures are a common source of finance available for companies that is cheaper
than the equity source of capital. Being an external source of finance the control over the
business stays with the existing owners only. This source of finance is available only for the
companies (Jain, 2021). The use of the debenture can help the incorporated business like the
public companies. The use of the debentures for the companies can be beneficial as it encourages
the long term funding source for the business and ensure its growth. This form of the funding is
also cost effective when it is compared to the other forms of lending the money. The debentures
do not carry any kind of the voting rights, and the financing with the debentures does not hold
the position to dilute the control of the shareholders and management authorities. Other bonds
and debentures are both the fundraising tools but the loans are to be paid back after some time
and at the setted date. On the other hand, debentures are secured against something that is
variable like inventory. The debentures are transferable but the loans are not transferable and no
collateral security is required in the but in the loan security is required.
Long Term Bank Loans: long term of the loans are among one of the most popular financing
source. This is the source of finance that is payable after long period like after five years or more.
Loans facilitated with the higher amount and are secured against the assets. Facilitating finance
under the long term of the bank loan can help by providing with the greater flexibility and

resources required by the incorporated businesses like the private companies, partnership firms,
or the sole proprietorship firms (Huang, and et.al., 2022). These helps in reducing the
dependency in the on the one source of capital. It helps the firms and the businesses in spreading
their debt maturities. Generally, this is considered as the most beneficial source of finance for the
long term as it provides with the financial help with the low rates of interests as founded on the
other sources of the funds like overdrafts and other money lenders.
Venture Capital & Business Angel: this is the source of finance that provides with the financial
help with the finance on the individual basis, and they usually finance the start-up businesses.
Angels are the wealthy investors that invests in the high potential businesses to have the equity
stake in the firm having the high potential of bringing in the profits. The venture capital is the
source of the finance providers that are the part of the company (Granz, Henn, and Lutz, 2020).
This is the type of the private equity and these finances are basically provided to the small
incorporated businesses like the sole proprietorship businesses. These finances are basically
facilitated by the investors, investment banks and the various financial institutions. Under the
finance provided by the angel investor, investor sees to place the big bets on the start up
businesses and under the venture capital the investor looks about the higher equity stake in the
company.
Venture capital can provide with the benefits like higher amounts of the capital can be
raised, no requirements to pay the monthly payments, businesses gets the opportunities of the
networking and grow the business on higher levels.
Using the angel investors as the source of the finance give the business various benefits
like flexibility, valuable knowledge, no interest or the repayment required. When comparing it
with the other sources of the funding it can provide with the help to grow the business and in the
negotiable ways.
Leasing: Lease financing is one of the important sources of medium-and long-term financing
under which the owner of the assets gives another person, the right to use that asset against
periodical methods of payments. The owner of the asset is known as lessor and the user is called
lessee of the funds. This works as the source of the contractual agreement in between the owner
of the assets who gives out the permission to the other person to have the right to use that asset.
This source of the financing provides with the benefits to the business like its helps in conserving
the cash (Gao, 2018). This capital can be used to finance other projects. Leasing of the funds

does not include the impact of the existing credit lines. This source of finance is available on the
most cheaper side than any of the other source of finance. The lease financing can provide the
business with the benefits of lower monthly payments, little or no down payments, more of the
cash for the purchases, sale tax can be paid for the term of lease. This source of the finance can
be used by the incorporated business like that of the partnership firms.
Lease financing is the source of the finance that helps in the with having the disruptive
features like lease works as the financing contract, availability of the two parties: lessor and the
lessee, equipments for the business or the operations are purchased by the lessor as requested by
the lessee, it is done for the specific period of time, lessee have to pay some kind of the rent or
the other types of the rentals to the lessor. Leasing is taken as the most important source of the
finance as compared to other sources because It does not require with the mortgage or the
hypothecation.

REFERENCES
Books and Journals
Gao, S.S., 2018. International leasing: Strategy and decision. Routledge.
Granz, C., Henn, M. and Lutz, E., 2020. Research on venture capitalists’ and business angels’
investment criteria: A systematic literature review. Contemporary developments in
entrepreneurial finance, pp.105-136.
Huang, H.H., Kerstein, J., Wang, C. and Wu, F., 2022. Firm climate risk, risk management, and
bank loan financing. Strategic Management Journal.
Jain, S., 2021. Capital of a Company-Shares and Debentures. Available at SSRN 3894781.
Kartavy, S., Eremina, I., Sorokin, P., Zalevina, A., Pisarev, M., Korkishko, A. and Nabokov, A.,
2021, September. Incorporation Project as a Tool for Students' Integration into the
Company's Business Processes. In SPE Annual Technical Conference and Exhibition.
OnePetro.
Online
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