Long Term Debts
Long term debts are the loans that are borrowed and have a maturity of longer than one year and are also accompanied with interest payments. Debts are the amount raised by the government of a country from within the country or from the outside sources to meet the financial expenses or for the deficit in the budget. The debts can be raised from the internal or the external sources. The debts that are to be repaid after a very short time are known as the short term debts and the debts that take a very long time and are payable after several years are known as long term debts.
Characteristics of long term debt:
The characteristics of the long term debt are:
The principal is paid till the period of time which is directly related to the life of the asset. Like in the case of the buildings and the lands the repayment period mostly comes to about 30 years and that of a personal computer the repayment period may be 3 years. The interest and the principal repayment are done in a fixed and a set repayment schedule. The percentage or the interest rate is often constant during the term of the debt. With the payment of the installments the principal amount keeps on reducing and the interest to be paid is calculated on the remaining of the principal amount. Thus, the interest payment keeps on reducing with the payment of each of the installments. The long term debts often carry a very little rate of interest rate generally because of the fixed terms and also because the loans are secured by assets.
Sources of long term debt:
The long term debt sources can be divided into three categories. They are:
Mortgage lenders:
The mortgage lenders consist of the various banks, insurance companies, pension funds and the trust companies. These agencies provide long term debts to the private sector also. Most of the above mortgage lenders provide a loan for more than five years and are the best sources for providing the advice useful for the first time borrowers.
Long term lenders:
These include the various banks, loan specialists, trust companies and the insurance companies. The evaluations done by this type of lenders usually are more rigorous and sophisticated.Before extending the loan they evaluate the abilities of the management team, and the assets available to support the loan and also look out for the commercial liability of the project
Equipment financing lenders:
Those lenders who provide long term loans required for the equipments are known as the equipment financing lenders. They basically consist of the independent sales finance companies and sometimes the vendors of the equipments also. They basically look for more proof regarding the commercial viability than that required by the Long Term Loan Lenders.
Long term debt products:
The long term debt products mostly consist of the Debentures, Secured and Unsecured notes, Fixed deposit loans, Interest only futures, Mortgages, Convertible notes, Preference shares etc.
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