Long Term Financing Example

The long-term financing It is a financing in which its fulfillment is over five years and its completion is specified in the contract or agreement that is made, generally in these financings there must be a guarantee that allows the processing of the loan required.

Between the formalities of long-term financing the following stand out:

• Mortgage
• Actions
• Bonds
• Financial leasing

1.- Mortgage. It is called a mortgage financing (equity loan), in which the party that contracts the debt, uses a property to guarantee said financing.

In the event that the debtor does not reach or be able to pay said mortgage, the property changes ownership with whom the mortgage is made.

Mortgage financing generates interest in favor of whoever grants it, this being one of the main benefits.

Advantages of the mortgage

For the lender, this business earns him interest benefits, and establishes a certainty of profit in case of non-compliance because there is the possibility of acquiring said property or having it sold to recover its investment.

Whoever acquires said mortgage, can generate profits for his business and recover his property, object of said mortgage

Disadvantages

Whoever lends, produces obligations to a third party.

Legal drawbacks for not receiving the payment amount.

Financing management

This financing is generally carried out with the intervention of banking institutions, and the procedures to conclude said financing are of judicial order, (in case of non-compliance) and the debtor or creditor will not be able to use the guarantee object until it is finalized formally.

2.- Actions.- The shares are the way in which the person (whether physical or moral), who acquires said documents, can participate and finance.

It is by means of the actions and their cost, that the capital is increased and allows to carry out the financing that the company needs, and in this way to achieve the expected tasks; There are several types of actions, and they differ widely from the value and the intervention in the company.

Advantage

Strong capital is provided by preferred shares.

Shares called preferred shares are those that focus on the acquisition and sale of companies and are called type "A" shares.

Disadvantages

The control of the company is established by the hierarchy of the shares, as well as by their quantity.

The cost is very high and its issuance is limited.

How to use

The so-called "preferred" shares or type "A" shares are the asset recorded as principal within the company and are the basis and maintenance of the same, when there is the liquidation of the shares it is done up to a limit point that is specified in the form previous.

The so-called “common” shares or “B” or “C” type shares are shares that leave participation limited to their owners or holders, and do not have a decision or vote within the company.

In all shares there is an issue date and an expiration date and every share is part of the stockholders' equity, even if the capital of the shares is taken as a priority "Preferred".

It is a personal decision which action to select for its acquisition, being the investor who will decide which of the three shares it will acquire and in what quantity it can acquire from the three types of shares.

Shares can be sold through a “underwriter” broker. The sale will be made by the investment broker and will be guided by underwriting law.

3.- Bonds.- The bonds are a certified document, which formalizes the promise made by a person (physical or moral) of pay a specific capital on a previously established date in which the interests that are decided will be included pin up.

Bond issuance can be advantageous if your shareholders do not share their ownership and profits of the business with new shareholders.

It is caused by the right to borrow capital that these bonds are issued. A bond leaves the person who has it as a shareholder. The bonds must be backed by tangible capital of the person who issues them, leaving a security for those who acquire them.

The benefit of a bond is less than that of a share, when dividends are made between shareholders.

Bonus advantages

Its sale is easy and its cost is reduced, improving the liquidity of the company.

Disadvantages

Whoever invests in these bonds must be meticulous.

Use of bonuses

The bonds are backed by a trust that prevents their value from moving.

The person who owns the bond receives a claim or lien for the property that has been offered as security for the loan.

In case of inconvenience, the trust can carry out the legal activities to guarantee capital coverage.

All the actions within the bonds are carried out by their own executives, they will be carried out through executives of the issuing bank or manager.

The benefits of the bonds are paid at the end of their term, including the corresponding interest.

When a company issues bonds, it must be very sure that the use of the money borrowed will result in a net profit and higher than the cost of the interest on the loan itself.

4.- Financial leasing. A financial lease is not very distant from a simple lease, but in this, whoever rents the property or thing, has activities within the company.

The use of this lease is for a period that is specified in the corresponding contract

We will emphasize the great flexibility that this has for the company because it allows making the movements that are considered necessary.

The lease may be for the company, the only way to finance the acquisition of assets.

Main advantages

It allows you movement in case the company goes bankrupt.

Disadvantages

It can be used as a means to evade taxes by being exempt from tax.

Leasing involves the payment of interest to the company.

The cost is higher than the acquisition of the rented item or concept.

How is it used

It is a loan, which must be covered by small payments that are made within an agreed term.

Whoever rents does not have the right to the leased thing or its asset redemption, this case will only arise if the thing is acquired.

For the duration of the lease, the total amount of payments will be greater than the original purchase price, because it is considering rent and interest for the resources that are committed during the life of the active.