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SOURCES OF LONG TERMFINANCE

Chief Financers :

PreeteshSaurabhVaibhavVinil

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What is finance ??

Finance is the blood of a

business

Sources of finance:-1. Short term sources

2. Long term sources

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Purpose of long term finance:-

To finance fixed assets

To finance the permanent part ofworking capital

To finance the growth and expansionof a business

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Factors determining long termsources of finance:-

Nature of business

Nature ofgoods produced

Technology used

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EQUITYCAPITAL

TERMS:

Authorized, Issued, Subscribed &

Paid- up Capital.

Par/ face Value, Issue Price, BookValue, Market Value.

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Rights Of Equity Share Holders:

q Right to Income

q

Right to Control

q Pre emptive Right

q Right in Liquidation

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EQUITY CAPITAL

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PREFERENCE CAPITAL

Hybrid form of Financing Equity Features:

-out of distributable profits

-dividends not tax deductible-Priority over Equity shares in case of

bankruptcy

Debenture features:-dividend rate is fixed-capital is redeemable-normally no right to vote

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PREFERENCE CAPITAL

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INTERNAL ACCRUALS

Retained Earnings Depreciation

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ACCRUALS

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TERM LOANS

Maturities Security Provided by Foreign Institutes/

Bank Repayment schedule Restrictive Covenants Convertibility

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Term Loan Contd

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DEBENTURES

Interest Security Maturity & Redemption Options Convertibility

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Few types ofDebenture

Non convertible debentures

Fully convertible debentures

Partly convertible debentures

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Debentures Contd

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Leasing Hire Purchase

Asset Securitization Government Subsidies Lottery funding Selling asset Convertible bonds eg:British Airways has

announced that it is to raise 300m of new funding via a convertible bon, as part of a 600m refinancing.

Other Important Sources of

financing

http://www.telegraph.co.uk/finance/newsbysector/transport/5848516/British-Airways-to-raise-600m-as-it-reports-100m-loss.htmlhttp://www.telegraph.co.uk/finance/newsbysector/transport/5848516/British-Airways-to-raise-600m-as-it-reports-100m-loss.html

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Foreign Collaborators

International FinancialInstitutions:

Non-Resident Indians

Foreign Sources

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Comparison of Various sources of Long termFinancing

Cost Dilution of Control

Risk Restrainton

managerial

freedom

Equity

Capital

High Yes Nil No

Retained

Earning

High No Nil No

Preference

Capital

High No Negligible No

Term

Loans

Low No High Moderate

Debenture

s

Low No High Some

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BENEFITS OF LONGTERM FINANCING

VIDEO

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Raising Long Term Finance

Initial Public offering Right Issue Private Placement Preferential Allotment Obtaining a Term Loan Venture Capital

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Initial Public Offering

Decision to go Public

Benefits Cost Eligibility

Book Building process

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Right Issue

Issue of capital to existingshareholders

Offer made on pro rata basis Right shares are tradable, may be

sold in open market.

Comparison with Public issue: familiarinvestors, hence likely to be moresuccessful

Less floatation costs

Lower pricing to benefit shareholders

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Private Placement

Sale of securities directly to wholesaleinvestors like FIs, banks, MFs, FIIs, PE fundsetc.(QIPs)

Called private placement in equity/equity

related instruments, in unlisted companiesand in all cases of debt Called preferential allotment in case of

unlisted companies for equity/equity relatedinstruments

Different from reservations made for suchQIBs out of a public issue Subject to SEBI regulations on pricing, lock in

period, open offer to be made to public QIB placement guidelines recently issued by

SEBI for compliance and disclosures

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Obtaining a term loan

Submission of loan application Initial processing of loan application Project Appraisal

Issue of Letter of Sanction Acceptance of terms and conditions

by the borrowing unit Execution of loan agreement

Disbursement of loan Creation of security Monitoring

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Venture Capital

Equity Participation

Long term investment

Participation in management

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Process of Venture CapitalFinancing