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1
Introduction
It is rightly said that finance is the life-blood of
business.
No Business can be carried on without source o...
Sources Of
                Finance



   Security      Internal    Loan Financing
  Financing     Financing



 Equity
 Sh...
Long Term Source of Finance
• Long term sources of finance are those that are
  needed over a longer period of time - gene...
Need for long term Finance
• Long term vs. short term(working capital) funds
  requirements
• For modernization, expansion...
Equity Share Capital            Preference Share Capital

Authorized, Issued,           Is a hybrid form of financing,
S...
DEBENTURES
• Just like shares, DEBENTURES are also instruments for
  raising long term finance
• “Debenture is a document ...
Term Loan
• Term loan also known as term finance is loan made by a
  bank/financial institution to a business having an in...
•   Evaluation – Low Cost & High Risk
•   Term Loan Procedure
•   Project Appraisal
•   Market Appraisal
•   Technical App...
Securitization Process
                                      Credit                      Contracts
           Obligors    ...
Leasing vs. Hire Purchase
              Leasing                         Hire-Purchase
•Ownership not transferred to buyer ...
Other Sources Of Long Term Finance
• Initial Public Offer (IPO)
• Securitization
• Government Subsidies/Grant
• Supplier’s...
Sources of finance
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Sources of finance

  1. 1. 1
  2. 2. Introduction It is rightly said that finance is the life-blood of business. No Business can be carried on without source of finance. There are several sources of Finance and as such the finance has to be raised from the right kind of source.
  3. 3. Sources Of Finance Security Internal Loan Financing Financing Financing Equity Shares Short- Retained Earnings Term Preference Shares Long- Depreciation Term Fund Debentures
  4. 4. Long Term Source of Finance • Long term sources of finance are those that are needed over a longer period of time - generally over a year. • Long term finance may be needed to fund expansion projects • It's Types Are:- Share,Debenture,Venture Capital, Government Grant, Bank Loan Mortgage, Owner Capital, Internal Accrual.
  5. 5. Need for long term Finance • Long term vs. short term(working capital) funds requirements • For modernization, expansion, diversification; huge quantities reqd., irreversible decision • Asset-liability mismatch, interest rate risk, liquidity risk.
  6. 6. Equity Share Capital Preference Share Capital Authorized, Issued, Is a hybrid form of financing, Subscribed and Paid up capital payment after debt but before equity Par/face value, Issue Price, Book value and Market Value Equity features: out of distributable profits not an obligatory payment Rights of equity shareholders dividends not tax deductible Right to Income :PAT less Debt features: preferred dividends dividend rate is fixed capital is redeemable Right to Control: voting no right to vote rights
  7. 7. DEBENTURES • Just like shares, DEBENTURES are also instruments for raising long term finance • “Debenture is a document that either creates a debt or acknowledges it, & is a debt without collateral” • Attributes:-  Interest rates  Convertibility  Security  Redemption  Credit rating & Trustee  Debenture redemption reserve
  8. 8. Term Loan • Term loan also known as term finance is loan made by a bank/financial institution to a business having an initial maturity of more than 1 yr and generally repayable in less than 10 yrs. • Features of Term Loans • Maturity • Negotiated • Security • Covenants – Negative & Positive • Repayment Schedule/Loan Amortization
  9. 9. • Evaluation – Low Cost & High Risk • Term Loan Procedure • Project Appraisal • Market Appraisal • Technical Appraisal • Financial Appraisal • Managerial Appraisal
  10. 10. Securitization Process Credit Contracts Obligors Ongoing cash flows Enhancement Initial cash flows Providers Collections Credit enhancement Original Issue of securities Loan Cash flows Servicing Collection SPV of securities Investors Sale of Agent asset Rating Subscription to securities Originator Rating Agency Structurer
  11. 11. Leasing vs. Hire Purchase Leasing Hire-Purchase •Ownership not transferred to buyer •Ownership transferred to hirer on payment of all installments •Depreciation benefit to lessor •Depreciation shield available to •Magnitude of funds high, for big hirer ticket items •Maybe for smaller value capital goods •No margin money/down payment required •Some down payment required •Maintenance of asset by lessor in operating lease •Maintenance cost borne by hirer
  12. 12. Other Sources Of Long Term Finance • Initial Public Offer (IPO) • Securitization • Government Subsidies/Grant • Supplier’s Credit • Private Placement • Venture Capital/ Private Equity • Bank Loan • Mortgage
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