Long term financial requirement is also called as fixed capital requirement. It is the capital required to purchase fixed assets like building, furniture, land, plant and machinery etc. These are also called as long term financial requirements of a firm. Repayable period in long term is more than five years. Long term financial sources include the following −
Equity share represents ownership interest in a company. In this, no compulsion to pay dividend and it does not have any maturity. Capital provided by these funds is more or less on permanent basis. It also creates base for debt and loan capacity of a firm.
Preference share is also called as owner’s capital with maturity period. Preference with respect to payment of dividend and preference with reference to repayment of capital in case of liquidation of a company are the two references in preference shares.
Preference shareholders have right to receive dividends prior to equity shareholders.
Cost of capital in preference shares is less.
Company does not face any legal proceedings, if it fails to pay the preference dividends.
Preference share may also provide hedge against inflation.
It is a document issued by the company. Debentures includes debenture stock, bonds or any other securities of a company.
Debentures are classified as Unsecured debentures, secured debentures, redeemable debentures, irredeemable debentures, convertible debentures and other types.
Different financial institutions will provide financial assistance in long term loans.