Long Term Sources of Finance - Internal - External Sources of Long Term Finance - Wikipedia of Finance

Long Term Sources of Finance


A business or organization, to keep running for long duration needs some sources of finance permanently. Long term sources of finance are those, which remains with the business for a longer duration of time. The main advantage is that it is not been paid immediately or within shorter time duration. Business need to repay those sources of finance after many many years. In this topic we will explain what are the long term sources of finance for our readers.

There are numerous people who wish to put their resources into a new company in the event that they like the ideas, growth model or might be demanding sector. Whereas on the other side companies requires fund for various operations and financial requirements. There are various financing options created to match the demand and supply based on the different criteria of the individual who wish to invest their funds in an organization.

Long Term Sources of Finance

Let us explain the long term sources of finance and discuss its characteristics in this topic. These categories further divide into two: internal sources of finance and external sources of finance. Let us understand this in more detail below:

External Long Term Sources of Finance

You can check below some of the external long term sources of finance which might be a good option for your business or your organization.

Equity Share Capital

It is the main sources of finance, which any organization would look before beginning the business. Equity share capital is the best alternative when looking for permanent sources of capital. It expresses the ownership rights of an organization. A public company may raise assets or funds from promoters, investors or individuals by issuing common equity shares of a company.

Shareholders/investors receive dividends only when distributable earnings are available. The risk for value investors is limited to the face value of the shares.

Preference Share Capital

Those individuals who are more keen towards payment of dividends at regular intervals rather than appreciation of capital value. In case of liquidation, the company initially pays preference shareholders, followed by paying equity shareholders. The company raises long-term funds from preference shares by offering a public issue of shares.

It does not require any security as well as they do not have ownership privilege in an organization. It has a few attributes of debt capital as well as some of equity capital. A company issues various types of preference share capital as long-term sources of finance. These types include:

  • Convertible Preference Shares.
  • Non-convertible Preference Shares.
  • Non-participating Preference Shares.
  • Participating Preference Shares.
  • Non-participating Preference Shares.
  • Redeemable Preference Shares.
  • Irredeemable Preference Shares.
  • Cumulative Preference Shares.
  • Non-cumulative Preference Shares.

Loans from Financial Institutions

The firm represents long-term sources of finance when it takes loans or finance from banks or non-banking financial institutions repayable within 3, 5, or under 10 years.

Financial Institutions give long-term loans for financial needs to private as well as public firms. For the most part company’s get long-term sources of finance by raising term loans. Below are some of the financial institutions that provides such types of term loans, they are: Nationalized Commercial Banks.

  • Development Banks.
  • Government Financial Institutions.
  • Other Investment Organizations.


A debenture is a debt record of declaration with a typical seal of an organization. It contains terms and conditions of debt repayment, rate of interest payments, redemption / maturity of debt and more and the information related to security offered by an organization. There are various different types of debentures issued by a company for sources of finance, they are:

  • Secured or Mortgage Debenture.
  • Simple or Naked Debentures.
  • Bearer Debentures.
  • Convertible Debentures.
  • Non-Convertible Debentures.
  • Redeemable Debentures.
  • Registered Debentures.
  • Irredeemable Debentures.
  • Right Debentures

Internal Long Term Sources of Finance

Below are some of the internal long term sources of finance which you can think of when you are looking around for sources of financing options.

Retained Earnings

The organization has accumulated income throughout the years, thus it can be termed as the company’s savings. The organization utilizes these undistributed profits kept as a reserve fund for specified purposes at specific points in time.

For example: business expansion, investing in research of new products, diversification programmes etc. In spite of the fact, it is one of the essential methods for long term sources of finance mostly for improvement, development or expansion of an organization.


Here we have seen various different types of long term sources of finance. One should analysis these types carefully before selecting or making your decision. As all these types have its unique characteristics with respect to dilution of ownership, requirement of any pledge or mortgage, cheapest method, liquidation rights, privilege of dividends and more. Check it out.

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