What is financing?

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What Does financing Mean

Financing is the action and effect of financing (contributing money for a company or project, defraying the expenses of a work or activity). Financing consists of providing money and resources for the acquisition of goods or services . It is common for financing to be channeled through credits or loans (whoever receives the money must return it in the future).

For example: “Unfortunately, we depend on financing to open a new store on the coast” , “Thanks to the financing from Banco de Crédito, we have been able to acquire new machinery and improve our production” , “I have an interesting project to manufacture shirts to low cost, but I need financing to be able to carry it out ” .

According to the maturity period , it is possible to distinguish two types of financing: short-term (when the maximum period of time to make the return of money is less than one year); long-term (there is more than one year to return the money, or there is no such obligation, as when financing is made with own funds). Let's see some examples: "We are studying various short-term financing alternatives since we do not want to go into debt for long periods" , "The businessman intends to install a new industrial plant in the city, but for that he requires a long-term financing plan" .
Another financing classification can be made taking into account the origin of the resources. The external financing is that which comes from investors who do not belong to the company (bank financing, bond issues, etc.), while domestic financing originates funds produced by the company itself through its activity ( amortizations, reserves, etc.).
It is important to bear in mind that the type of financing to choose for a given project depends on various factors, such as the urgency to carry it out, the demands of the source, the time in which it is estimated that it will be possible to return the money, and the volume of resources necessary for the start-up. Today there are many options, some of which are listed below:
Bank financing : this is one of the most difficult paths for entrepreneurs, since among the requirements of banks is that the project be highly solvent, that it is an idea that has been successful in the past and that they are provide an extremely detailed analysis of each phase in which your money will be used, as well as the plans for its return. Why, then, is it still one of the main alternatives? Because the process is fast and many consider it reliable;

Friends, acquaintances and relatives : at first glance, it seems a foolproof method. But, given that they are the closest beings to an entrepreneur, there are various situations that can put their relationships at risk, such as late repayment, or loans being too discreet . Why attempt against interpersonal ties if there are other means of obtaining financing? Because among the people around us there are usually one or two who support us unconditionally, and who would not allow a debt to ruin our friendship;
Crowdfunding : without a doubt, this option is very popular today, mainly due to the success that certain entrepreneurs have obtained through platforms such as Kickstarter and Lánzanos. The procedure is relatively simple: after registering on the crowdfunding portal, we upload a description of our project, along with a video and with details of the rewards that the sponsors will receive, and we wait for approval. To get good results, it is essential to do a lot of advertising on social media. What is your weak point? The lack of structure, since it does not differ much from a word agreement.

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