Obtaining long-term finance requires a careful balance of various sources. In many cases, long-term finance is necessary to meet the investment plans of an organisation or cover its operating costs. In this course, students will learn about various long-term financing options and how to manage them. They’ll also study various real-world scenarios and use case studies to illustrate the concepts. The course is part of the CGMA’s Finance Leadership Program, which also offers further learning on the subject. The course is also offered as 1 hour of CPD or CPE credit for CIMA members.
One of the primary differences between long-term finance and other forms of finance is the length of the term. Because long-term loans have longer maturities, they are often more appealing to businesses that wish to extend their refinancing plans. Furthermore, they offer companies a long-term runway for investment return.
In addition, long-term finance involves the transfer of risk. Borrowers and lenders will enter contracts for short-term or long-term periods, wherein the two parties will share risk at different maturities. Long-term finance providers tend to be large insurance companies or institutional investors with the consistent capacity to lend money over long-term periods.
Regardless of the method used to measure long-term finance, it is important to remember that this type of finance is critical to driving economic growth and development. In fact, research by FSD Africa estimates that the total funding gap in Africa is estimated at over $300bn per year. One of the key challenges in obtaining long-term finance in Africa is a lack of data and information.
Long-term loans leverage existing equity to purchase assets. They can be used to purchase equipment, vehicles, or working capital. They typically require a 10% to 20% down payment from the borrower. The down payment can be in the form of trade-ins or other assets. The new assets will appear on the balance sheet, alongside their associated debt, and will improve the business’s position.
Long-term finance has proven to be an effective means of building wealth. Investing for the long-term requires the ability to think long-term and to avoid obsessive market following. This method will allow you to focus on more important things, including family, business, and education. So, the next time you go to a bank for long-term finance, don’t forget to invest in long-term assets.
While long-term finance is a long-term option, short-term finance can be useful for a business that needs cash quickly. Because the repayment term is shorter, the amount of interest will be less, compared to long-term finance. Short-term finance is more flexible and more affordable for qualified borrowers.
The most common long-term business funding source is a bank loan. A long-term bank loan is the most convenient option, but it comes with a long list of terms and amortizations. It is not the best option for businesses that need to plan for more than three years. It is also more risky, so it is essential to have significant assets and a cash flow to attract the lender.