Q.Write a short note on: Long-term Finance

Long-term finance refers to funds needed by a business for a long period (usually more than five years), chiefly to buy fixed assets and to meet permanent capital needs. It is raised through long-term sources such as equity and preference shares, debentures, long-term loans and ploughed-back profits.

Long-term Finance

Long-term finance means the funds required by a business for a long period of time, generally for more than five years. It is needed to:

• purchase fixed assets such as land, buildings, plant and machinery,
• finance permanent working capital, and
• meet the needs of modernisation and expansion.

Because these needs are permanent or semi-permanent, long-term finance is raised from long-term sources such as:

• Equity shares and preference shares,
• Debentures,
• Long-term loans from banks and financial institutions, and
• Retained earnings (ploughing back of profits).

It is distinguished from medium-term finance (one to five years) and short-term finance (up to one year, for working-capital needs).

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