Long Term Sources of Finance

Question 1

What is Share Capital?

Answer 1

Public Companies can raise money by issuing shares to the public. Proprietary companies cannot raise money from the public

Question 2

What is a Bank Loan?

Answer 2

A business can borrow money from a bank for periods of 5 years or more. This type of loan should be used to purchase plant and equipment that will be used by the business for many years

Question 3

What is Lease Finance?

Answer 3

Finance lease- the business has the right to by item at end of the lease
Operating- item must be returned after the end of the lease period

Question 4

What is a debenture?

Answer 4

The investor receives interest at a fixed rate on the money loaned. The debenture is backed by a right to sell certain assets of the company if the loan is not repaid on time

Question 5

What is an Unsecured Note?

Answer 5

Same as a debenture but not secured so business cannot sell assets if amount is not repaid