Long-term loans (financing of capital investment) is an activity for the effective recruitment and use of funds in order to create a new property complex, revenue-generating, or modernization of the existing in order to increase its cost-effectiveness. The main objective of long-term loans is to ensure the implementation of real investment programs and best use for this purpose funds. The sources of repayment of such financing are cash flows generated in the future (or gain) of an investee entity.
Objects investments – different types produced and (or) the modified property (buildings and structures of production and non-production), located in the state, municipal and other forms of ownership. They differ in a number of technical and economic characteristics. So, they are characterized by a longer period of production and the high, compared with other industries, the unit value of the finished product. This involves large non-recurring costs and the duration of their distraction to the creation of capital investment.
Types and forms of long-term funding, their advantages and disadvantages
Types of financing capital investments are combined into two main groups: internal and external. The internal financing, carried out by enterprises’ own funds, referred to as self-financing . This is the most preferred mode of financing of investment projects, as well as the availability of own funds does an enterprise independent of the creditor and allows him to carry out a long-term investment strategy. But the implementation of investment projects involves, as we know, a one-time investment of significant financial resources, and often for a long time.Therefore, this method has some limitations, as it is mainly used for the implementation of small real investment programs and for financial investment.
Financing of capital investments, carried out at the expense of raising funds from external sources (issue of shares, bonds, bank loans, foreign investment, etc.) are called external financing .
The main forms of external financing of capital investments (investment projects) are in the domestic and international practice: a loan (debt), equity, centralized and mixed financing, as well as new forms of financing for Russian – leasing, project and venture.
Financing through the sale of shares, ie, by contributions from the founders and strategic investors, and as a result of the transfer of the company’s assets into the ownership of shareholders, called equity or joint-stock . The strength of this form of financing is to attract investment without further payment of interest.Weakness – partial loss of control over the enterprise (project). This form of financing is used for the implementation of major capital investment, such as construction of a new enterprise, and also to attract additional investment resources to the current company. Given that the attraction of financial resources from the stock market due to the issue of securities, financing through the issuance of shares and bonds are often called equity .