A definition of financing is the contribution of money that a company or individual makes and that is needed to carry out an activity or project, such as the development of one's own business or the expansion of an existing one.
The most common method of obtaining financing is through credits or loans. They can be delivered by financial companies oriented to the delivery of credits, such as banks, or by individuals, such as friends or family.
Those who favor financing, that is, those who lend the capital, usually require the collection of some interests for the loan delivered, at a rate specified in advance.
Types of financing
Financing is classified in different ways based on a series of parameters such as the repayment period:
- Short-term financing: the period established for the return of the borrowed money is below one year.
- Long-term financing: the term for the return of the money is over one year or there is not even a time commitment.
Another way to classify the concept of financing is by the origin of the funds granted:
- External financing: the money comes from investors who are not part of the aforementioned company in question, as may be the case of credit companies or banks.
- Internal financing: is the entity that gets the money from the company's own financial means. This is the case, for example, of the sales of some good, reservations, etc. A company can market a machine that it no longer uses and that has a high market value. With the money entered you can finance other actions of the business.
At a private level, people can also finance themselves through Credit cards. They use them to buy something they want, but at the time of purchase they do not meet all the required funds. The aforementioned good will be paid with said card in your name, in one or more payments and the fees will be paid at the beginning or end of the month when the card summary arrives.
Financing of companies