Sources of Long-Term Finance

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Long-term financing is a tool that companies use to expand operations or to acquire other businesses. Because most companies do not have high cash balances on hand, several types of long-term financing are available for major business purchases or investments.

Bank Loans

A traditional form of long-term financing is bank loans. These loans have stated terms regarding loan amounts, interest rates and repayment length. Most bank loans are not altered once agreed upon between a company and the bank.

Credit Lines

Credit lines are revolving loans that are available any time during business operations. Because credit lines can have high interest rates, they are not the best long-term financing options.

Equity Financing

Equity financing is the issuance of stock by public companies to raise funds for business investments. Companies must be careful not to issue too much stock, as this dilutes the value of shareholders' equity and may lessen the chance for more public investment.

Venture Capital

Venture capitalists offer personal loans to companies for a stated return percentage. These individuals generally do not offer any services to the company other than cash for investment purposes

Private Financing

Private financing is a loan option offered between a seller and a buyer. Large manufacturing firms have finance departments capable of managing loans for large equipment purchases. An example is Ford Motor Credit or Honda Finance, which hold and manage loans for companies making fleet vehicle purchases.

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