Companies needs finance all the time either for short term or for medium to long term. A company needs short term financing in order to meet its working capital requirements. Short term financing is generally done for a period of less than 12 months. Any finances raised for more than a year is considered to be medium to long term financing for the company.  Long term finance is generally required by companies to purchase fixed assets or for any other expansion purpose.

There are lots of options available to the company for raising long term funds:

Shares:
Issuing equity shares for the company is the most common and largely opted route of financing for the companies. In the case of equity financing, the company sells the partial interest in the company to investors. Raising the funds through equity issue is also considered to be beneficial as it is paid back only at the time of the winding up of the company. This is in complete contrast to raising the funds or capital through other routes such as debt where the lenders levy heavy penalties for not complying with repayment deadlines. Once the equity is issued to the investors, it is openly traded in the secondary market where the investors can buy and sell the equity whenever they want. One major disadvantage of raising the funds through equity is that owners need to part with their ownership in the business. However, positives of raising the funds or capital through equity far outweigh its negatives.

Retained earnings:
Since long time, retained earnings has been chiefly used as a means of financing the long term plans or projects of the company. Retained earnings refer to that part of the company’s earnings which have not been distributed by the company to its shareholders. Retained earnings can be termed as the free cost of financing for the companies as all the other sources such as banks, financial institutions, equity etc come at a cost.

Debenture/bonds:
Debentures or Bonds are issued to the investors by the company to meet their medium to long term finance requirements. Company compensates the debenture holders by paying them interest on the amount invested by them.  Debentures are considered to be less risky vis-à-vis the equity financing as debenture holders are assured of capital repayment and interest ahead of the shareholders. Debenture or bond holders are considered as the creditors of the company as opposed to equity shareholders which are considered as the owners of the company.

Loans from banks / FI’s
In addition to equity and bonds, a company can also raise finance through banks. Since the funds required for long term financing are generally huge, you can also get the loans from consortium of banks or financial institutions. Long term loans given by banks / FI’s are collateralized by the assets of the company. In the even of non payment, the banks have the right to stake their claim on the collateral security.

Venture capital:
Venture capital route has gained importance in recent years, as many companies are opting for it for meeting their long term needs. Ventura capitalist are the consortium of individuals who are always on the look out to invest in a growing company or the company with lo of potential. Venture capitalist provides funds to the company for meeting their long term requirements and in return they get the part ownership of the company.