Essential financial clues for investors you need to know

In every venture one decides to follow, it is important to know and understand the root words of such ventures, before we delve deep into the topic of the day, let us first understand their meanings.

What are FINANCE AND FINANCING

Finance is a branch of economics that is a French word that originated in the 18th century which refers to the process of controlling and handling monetary affairs. These affairs include management and trading of assets, investments, marketing, saving, lending, borrowing, etc. Finance shows us how to acquire and use money in our daily life activities.

When there are business opportunities or situations where capital is needed to start up a project, financing comes into play. Financing is defined as the processes involved in generating the funds or capital used to make business transactions.

what are the Types of Finance?

There are three major types of finance, namely;

Personal finance describes the management and planning of the financial affairs of an individual. Such financial affairs include; investing, income and capital generation, debt, saving, etc. An example of personal finance is, saving for retirement, tax payments, paying mortgages, insurance payments, etc.
Corporate financing deals with the financial composition of an organization or corporate environment. It involves the gadgets used in the distribution, sourcing of funds and payment of debts owed by the corporation. Examples of corporate finance include; debt payments and corporate investments.
Public finance deals with the catering and management of a country or state’s financial affairs. This includes the spending, debt payments and income generation for the said government.

what ARE THE TYPES OF FINANCing:

The two types of financing are;

Equity financing does not require paybacks. Equity finance describes ownership in the sense that the owner of a business is required to give up some form of part ownership to the investor. For instance, if a business owner is looking for ways to generate capital for his/her business, he/she has the option of giving up part ownership to investors.

Advantages of EQUITY financing

Equity financing has its own advantages; some of them include;

  • Not having to pay back any money invested in the business.
  • The risks in investments being taken in your business are bored by the investors.
  • The income generated from the business is used to flourish the business, instead of setting some out to pay back debtors.
  • The interest rates in debt financing are too high, whereas, equity financing does not need any interest rates to be paid.

Disadvantages of Equity Financing

Some disadvantages of equity financing are;

  • It involves giving up some power over in your business.
  • You cease to be the sole decision-maker in your business.
  • The profits from the business are shared among the business owner and its investors.
  • There is a strong tendency that there could be a fallout between the business owner and the investors or even among the investors.
Debt financing involves paying back debt owed or loan borrowed from an individual or corporation. Most times it is required to pay some sort of interest with the debt owed. When involving in debt financing, the corporation or individuals seek collateral, matching the value of the funds borrowed, which will be acquired in a case where the debt cannot be paid; these collaterals usually come in the form of properties.

Advantages of Debt financing

Advantages of debt financing include;

  • The interests paid can be used to remove some tax expenses on the borrower.
  • The lender has no control over the business.
  • After payment of debt is made, the lender has no other ties with the borrower.
  • The borrowed funds have a date of maturity so it is easier to prepare them.

disadvantages OF DEBT FINANCING

The disadvantages of debt financing include;

  • Generating the funds to pay for the debt begins to pose as a problem when the business is incapable of financial growth.
  • It becomes difficult sometimes to get a loan from any financial institution, especially when the business is still new and has little to no financial growth.
  • Failure to pay in the borrowed funds and interests could lead to penalties such as losing the collateral.
  • When the business has low credit ratings, it becomes difficult to find financial institutions to take out loans from.

what is the Importance of Finance and Financing?

The main aim of finance is the generation and or management of funds. Finance has a lot of roles to play in different aspects of everyone’s life; be it science, business, systems, etc. let us now look into the general importance of finance.

  • Finance is very important when it comes to the establishment of a business. Funds are needed in order to start up a business and as long as funds are involved, the management of such funds is necessary.
  • Finance is also important when it comes to the operation of an enterprise. In order for the transactions which are made in a company to go smoothly, one has to factor in the element of finance.
  • Another importance of finance is its ability to extend the life span of a business. Many businesses liquidate because they go bankrupt, in a case where there is a steady influx of funds, these businesses would be in business.
  • Finance is also important when it comes to fighting competition. Making advertisements and endorsements require funds that are used to increase sales and stay relevant in the market.
  • Maintenance of business properties or structures requires funding. The amount of money used in maintenance could differ, depending on the structures which need maintenance.

CONCLUSION

Finance and financing deal with organizing the financial affairs of an individual, organization or governmental body. Numerous factors need to be considered and a lot of options need to be looked into when dealing with finance and financing. Every individual, business owner or government official needs to take time to evaluate such factors. It is also important to consult a financial advisor who will guide you through every financial affair to be dealt with.

FAQs:

What is Finance?

Finance is a branch of economics that is a French word that originated in the 18th century which refers to the process of controlling and handling monetary affairs.

What is Financing?

Financing is defined as the processes involved in generating the funds or capital used to make business transactions.

What are the types of finance?

There are three major types of finance namely:
1. Personal finance
2. Corporate finance
3. Public finance.

What are the types of financing?

There are thwo major types of financing namely:
1. Equity financing
2. Debt financing

What is the importance of finance and financing?

1. Finance is very important when it comes to the establishment of a business.
2. Finance is also important when it comes to the operation of an enterprise.
3. Another importance of finance is its ability to extend the life span of a business.
4. Finance is also important when it comes to fighting competition.
5. Maintenance of business properties or structures requires funding.

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