Financing involves the provision of money, usually in the form of a loan or credit, to cover a certain expense.
Financing is the action and effect of financing (providing 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 location on the coast,” “Thanks to 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 at low cost, but I need financing to be able to carry it out.”
Types of financing
According to the maturity period, it is possible to distinguish two types of financing: short-term (when the maximum period of time to repay the 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 the financing is carried out with own funds). Let's look at 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 classification of financing can be made taking into account the origin of the resources. External financing is that which comes from investors who do not belong to the company (bank financing, issuance of bonds, etc.), while internal financing originates from funds produced by the company itself through its activity ( amortizations, reserves, etc.).
When a person wants to buy a car, it is common for them to resort to financing.
Factors to consider
It is important to keep 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 requirements 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 implementation. Currently there are many options, some of which are listed below:
Bank financing : this is one of the most difficult paths for entrepreneurs, given that the banks' demands include 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 quick and many consider it reliable.
Friends, acquaintances and family : at first glance, it seems like a foolproof method. But, given that these are those closest to an entrepreneur, there are various situations that can put their relationships at risk, such as delays in repayment, or loans being too discreet. Why attack interpersonal ties if there are other means to obtain 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 details of the rewards that sponsors will receive, and we wait to receive approval. To obtain good results, it is essential to do a lot of advertising on social networks. What is your weak point? The lack of structure, since it is not much different from a verbal agreement.