Sources of Long Term Finance

Definition: The Sources of Long Term Finance are those sources from where the funds are raised for a longer period of time, usually more than a year. Long term financing is required for modernization, expansion, diversification and development of business operations.

Generally, the companies resort to the sources of long-term finance when they have an inadequate cash balance and need capital to carry out its operation for a longer period of time.

Objectives of Long-term Financing

  • To purchase new asset or equipment
  • To finance the permanent part of the working capital
  • To enhance the cash flow in the firm
  • To invest in R&D operations
  • To construct or build new construction projects
  • To develop a new product
  • To design marketing strategies or increase facilities
  • To expand business operations

The long term financing could be done internally, i.e. within the organization or externally, i.e. from outside the organization.

The Internal Sources of long-term finance:

The External Sources of Long Term Finance:

Thus, the nature of business, the kind of goods produced and the technology being used in the organization, decides the source from where the finances could be raised.

2 Comments

Leave a Reply

Your email address will not be published. Required fields are marked *

Shares