External Finance Sources for Medium and Long Term

Key Sources of External Business Finance

The main sources of external finance for the medium and long term are contributions from partners, which become resources or capital, and other long-term funds from outside the company. These funds must be repaid within the agreed time and constitute the non-current or long-term liabilities of the company.

Contributions from Partners (Capital Increase)

This capital reflects the contributions that partners have made during the constitution of the company or in subsequent expansions to increase the capacity or size of the business. These funds will not be returned; therefore, these resources are treated as equity, as opposed to other sources of external financing that must be repaid.

Medium and Long-Term Loans

A loan is an agreement between a lender and a borrower, where the lender delivers a sum of money to the borrower on the condition that it is paid back at the appointed time along with the agreed interest.

Borrowings and Bonds

When firms need large sums of money and the conditions of loans offered by financial institutions are not economically acceptable, they may borrow from individuals. These are aliquot obligations called bonds. These securities are purchased by individuals and companies in exchange for interest. Over the established time, the company pays back the money plus interest according to the agreed conditions. As the agreed interest is fixed, bonds are considered fixed-income securities, as opposed to shares, which are equity securities.

Leasing and Renting Solutions

Leasing

Leasing is a financing system whereby a company can incorporate non-current assets in exchange for a rental fee. At the end of the contract, the company can choose to acquire the property by paying a purchase option or return it.

Renting

Renting consists of renting property in the medium and long term. The company agrees to pay a fixed monthly income during the given period, and the renting company is committed to facilitating the use of the property and maintaining it for the duration of the contract.