Short Term and long Term Sources of

Finance
• Finance required –
New project
Expansion
Diversification
Modernization
Rehabilitation
 The selection of the finance
source depends on-
• Company’s financial strategy
• Leverage planned by the Company
• Financial conditions in the economy
• Risk profile of the Company & Industry
 Financial needs of a business

• Long Term – Investments, more than 5

years, permanent WC
• Medium Term –Deferred revenue expenses,
>1 year <5 year
• Short Term –Routine WC needs, 1 year
 Long Term Finance
• Share capital /Equity share
• Preference shares
• Retained earnings
• Debentures / Bonds
• Loan from Financial Institutions
• Loan from State Financial Corporations
• Loan from Commercial Banks
• Venture capital funding
• Mergers and Acquisitions
 Venture Capital Funding

• The early stage financing of new and young

enterprises seeking to grow rapidly.
• Involvement by the venture capitalist in the
management of the client enterprises
• Selling the shares to the venture capital firms
• Features of VCs
Equity participation
Long-term investment
Participation in management
 Lease Financing

• Lease finance contributes 1/3 of the business

investments
• Terms in lease funding
 Lessor
 Lessee
 Lease rental
 Up-fronted lease
 Back-ended lease
 Primary lease
 Secondary lease
 Terms in lease funding….
 Lease depreciation
 Leveraged lease
 Closed and open ended lease
 Direct lease
 Master lease
 Sale –and – lease –back
 Cross border lease
 Percentage lease
 Wet and dry lease
 Net net net ( triple net ) lease
 Update lease
 Types of lease
• Operating lease
• Financial lease
 Cash flow consequences of a
financial lease
• Avoidance of the purchase price
• Loss of depreciation tax shield
• After –tax payment of lease rentals
 Myths about leasing
• Leasing provide 100% financing
• Leasing provides Off-Balance-Sheet
financing
• Leasing improve performance
• Leasing avoids control of capital spending
 Advantages of leasing
• Leasing provides 100% financing
• Convenience and flexibility
• Maintains and specialized services
• Shifting the risk of obsolescence
 Medium Term Financing
• Preference shares
• Debt
• Fixed deposits <3 years
• Commercial banks
• Financial institution
• State financial corporations
• Lease financing/hire purchase financing
• External commercial borrowings
 Leveraged Buy –Outs( LBO)

• LBO is an acquisition of a company in which

the acquisition is substantially financed
through debt.Debt It generally involve
payment by cash to the seller.
• Mangers buy their company from its owners
employing debt, the LBO is called
management buy-out.
• The main motivation in LBOs is to increase
wealth rapidly in a short span of time.
 Mergers and Acquisitions

• Business combinations which may take

forms of mergers, acquisitions, absorption
consolidation and take over are important
features of corporate structural changes
• It affect the external growth of the
company.
 Merger
• The combination of 2 or more companies in
to one entity, usually through exchange of
shares
• Types of mergers
– Horizontal
– Vertical
– Conglomerate
Merger through absorption and consolidation
 Acquisitions
• . Acquisition may be defined as an act of
acquiring effective control by one company
owner of another company without any
combination.
 Absorption
• An absorption is a combination of 2 or
more companies into an existing company.
All companies except one lose their identity
in a merger through absorption.
 Consolidation
• Consolidation is a combination of 2 or more
companies into a new company.All
companies are legally dissolved and new
entity is created.
 Takeover
• Obtaining of control over management of a
company by another.Legal control not
necessary.Holding monitory ownership.
 Benefits of mergers
• Enhanced production and marketing
operations
• Enhanced competition
• Breaking of trade barriers
• Free flow of capital
• Globalization
 Short Term Financing
• Trade Credit
• Commercial Banks
• Fixed deposit < 1 year
• Advance received from customers
• Factoring