The shortcomings of long-term loan financing mainly include:
1. The financing risk is high.
There are many restrictive clauses.
3. The financing amount is limited.
Long-term loans are one of the main sources of funds for project investment. An investment project needs a lot of money, and it is often not enough to rely on its own funds, so it needs to borrow from abroad. Long-term loans generally come from domestic banks and international development institutions. "Corporate bonds" are the basic long-term debt securities of the company, and they are long-term promissory notes with a term of 10 years or more. Important matters such as repayment of principal and interest, guarantee methods, etc. are agreed in trust deed. The financing of long-term loans should be limited to the part of funds that enterprises lack for long-term investment, because except for some international institutions, the cost of long-term loans is very high, so try to borrow less.
Long-term loans can be repaid with new debts instead of old ones. There are two common ways of regular repayment: sinking fund and installment repayment. When borrowing long-term loans, decision makers should fully consider the expected cash flow and future interest rate changes of investment projects in order to obtain lower financing costs.
What does the increase in short-term borrowing mean?
There are two possibilities.
1, indicating that there is a problem with the company's operating cash flow.
2. The company has new projects in a short period of time, which need early investment.
What do you mean by long-term borrowing?
Long-term loans refer to all kinds of loans that enterprises borrow from banks or other financial institutions for a period of more than one year (excluding one year) or with an operating cycle of more than one year. The long-term loans of joint-stock enterprises in China are mainly long-term loans borrowed from financial institutions, such as loans obtained from professional banks and commercial banks; In addition, it also includes funds borrowed from finance companies, investment companies and other financial enterprises.
Main applications
1. Long-term loans of enterprises can make up for the shortage of liquidity of enterprises, and to a certain extent, they also play the role of the bottom fund needed by construction enterprises for normal construction, production and operation.
2. In order to expand construction, production and operation and engage in diversified operations, enterprises need to purchase all kinds of machinery and equipment and build factories, which requires enterprises to invest a lot of long-term occupied funds, and the working capital owned by enterprises often cannot meet this need. If they wait for the accumulated funds formed within the enterprise to purchase and build, they may lose the favorable opportunity for the development of the enterprise.
Borrowing long-term loans can bring profit opportunities for investors. The long-term funds needed by enterprises come from two aspects: one is to increase the funds invested by investors; The second is to borrow long-term prices. From the perspective of investors, borrowing long-term loans is often more beneficial. On the one hand, it is beneficial for investors to maintain their original power to control enterprises, and will not affect their own interests because enterprises raise long-term funds; On the other hand, it can also bring profit opportunities for investors. Because long-term loan interest can be included in financial expenses and pre-tax profits, in the case of corporate profits, it can pay less income tax and increase profits for investors.