economy

definition of financing

Monetary and credit resources that are destined to the development of a project

The term of Financing is designated as the set of monetary and credit resources that will be allocated to a company, activity, organization or individual so that they carry out a certain activity or specify a project, one of the most common being the opening of a new business .

Loans or credits

It should be noted that the most common ways to obtain financing for some of the aforementioned projects is a loan that is received from an individual or a company, or via credit that is usually managed and achieved in a financial institution.

Individuals, companies, governments, main applicants for financing

Now, not only individuals who want to open their own business, or companies, request financing to expand or develop businesses, but also the national, provincial or municipal governments of a nation often make use of this alternative to be able to carry out works in their respective administrations, among the most common: construction of roads, health care centers, laying sewage networks, among others. Although, we must also highlight that financing can be requested to counteract a deficit financial situation that does not allow meeting the commitments made.

The main peculiarity then is that these financial resources are generally sums of money that come into the hands of companies, or some government efforts to supplement their own resources.

As I mentioned, the financing It can be contracted within the country or outside it through credits, loans or any other type of obligation derived from the subscription or issuance of credit instruments or any other document payable in term.

The destinations of the financing

Above we commented that in the case of governments, financing requests are more than anything linked to getting out of a budget deficit or to finishing some type of work that has been started and cannot be completed because there is no money. In the case of companies, financing is usually managed to acquire certain goods, such as machinery, which turn out to be essential when carrying out the company's functions. And in the case of individuals, financing is usually requested when opening their own business.

Forms of financing

There are several forms of financing, which are classified as: according to the expiration period: short-term financing (maturity is less than one year, bank credit, discount line, spontaneous financing) and long-term financing (maturity is greater than one year, capital increases, self-financing, bank loans, issuance of bonds); according to origin: internal (funds that the company produces through its activity and that are reinvested in the company itself) or external (they come from investors, partners or creditors); according to the owners: unrelated (They are part of the payable liability, at some point they must be returned as they have an expiration date, credits, issuance of obligations) or own (They do not expire).

Governments usually request financing from international credit organizations, meanwhile individuals and companies often ask financial institutions and family members as well. This last practice is usually very common among family or friends, however, we must say that it can be a double-edged sword since in some situations it can resent personal relationships if the person does not return the money on time.

Meanwhile, in relation to bank loans, it is important to note that they require many requirements and conditions when providing project financing. They must consider it very feasible to do so.

The borrowed money must be returned in a timely manner

Whatever the methodology through which the financing was achieved, it is worth noting that the borrowed money must be returned in a timely manner, as agreed. Normally a written document is made in which the amount loaned and the way in which it will be returned is established, that is, the time and also if it means interest and repayment in installments, for example.

If this return is not satisfactorily complied with, the company, person or government that does not comply will be duly penalized for it, being able to be sued and of course obliged by justice to pay what it owes.