Long Term and Short Term Financing Week 5 Day 5

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Long term financing

The long term financing is necessary for all kinds of business entities irrespective of their size or statue. This is a form of financing that is provided for a period of more than a year.

Uses of long term financing: are used in separate ways by different types of business entities. Business entities that are not corporations are only to use long term financing for the purpose of debt but corporations can also use the long term financing for both debt and equity purposes.

Some of the main sources of long term financing are: Debt, derivatives, and equity.

These products are provided as part of the long term financing services: debentures, interest rate swaps, secured notes, forward rate agreements, unsecured notes, interest only futures, convertible notes, option on future contracts, fixed deposit loans, subordinated debt, mortgages, preference shares, and euro-bonds.

Types of long term financing:

It depends on the particular company as to which type is provided for them.

For example : a sole proprietorship is provided with a different long term financing than that of a partnership.

Short term finance: This type of finance is required for a period of less than a year. It is required to provide working capital for the business. The working capital is needed to purchase of raw material, payment of wages, salaries and meeting day to day expanses of the business. Short term finance may be required to meet the seasonal requirements of business. It is available at low rate of interest.

Some sources are: trade credit, advances from customers, commercial banks, financial institutions.

Financial institutions also advance short term finance to the business. The finance corporations help the business by providing short term funds. Some financial institutions are working at provincial level under the cooperative societies act.