BUSF_A01.qxd

8.1 Introduction

In previous chapters we have seen that businesses raise their long-term finance either

from equity shareholders or from borrowings. Within each type of financing (equity

or borrowing) are several subtypes. In fact, one fairly important financing method

(convertible loan notes) has elements of both equity and borrowing.

In this chapter we shall consider the various subtypes. Given the financial objective

of maximisation of shareholders’ wealth we shall consider each of them in the context

of how they will affect the interests of existing equity shareholders. We shall also try

to assess their attractions to potential investors.

Sources of long-term finance

In this chapter we shall deal with the following:

‘the key factors to consider in respect of each type of financing

‘equity financing

8.3 Methods of raising additional equity finance

‘preference shares

8.5 Loan notes and debentures

‘convertible loan notes

‘warrants

8.9 Asset-backed finance (securitisation)

‘term loans

‘the use of finance leasing

8.11 Grants from public funds

‘the attitude that businesses should take to deciding on their financing

method

Chapter 8

Objectives