Meaning of Financing

What is Financing:

Financing or financing is known as the mechanism through which money is provided or a loan is granted to a person, company or organization so that it carries out a project, acquires goods or services, covers the expenses of an activity or work, or meet your commitments to your suppliers.

Financing is an important engine for the development of the economy, as it allows companies to access resources to carry out their activities, plan their future or expand.

The most common way to obtain financing is through loans or credits to banks. Generally, it is money that must be paid back in the near or distant future, with or without interest, in full or in installments.

See also

  • Loan.
  • Sponsor.

Short and long term financing

In terms of time, there are two types of financing: short-term and long-term.

Short-term financing: it is one whose maturity term is less than one year, such as, for example, bank credit.

Long-term financing: it is one whose maturity term is greater than one year, although it may also not have a deadline for its repayment (when it comes from friends or relatives). Such is the case of capital increases, self-financing or some bank loans.

Internal and external financing

Depending on where you come from, financing can be divided into external and internal.

Internal financing: it is one in which the company uses its own financial means, as a result of its activity, to reinvest its profits in itself. It can come from reserves, equity, amortizations, etc.

External financing: it is one that comes from investors who are not part of the company. For example: bank financing or a sponsor.

Own and third-party financing

Financing can also be distinguished by taking ownership of it into consideration.

Own financing: it is made up of those financial resources that belong to the company and that it is not obliged to return, such as reserves and capital stock.

Third-party financing: it is made up of all that money that, despite being in the company, belongs to third parties, and that has entered it through credits, so that at some point it must be returned.

Tags:  General Sayings And Proverbs Expressions-In-English