What does it mean to Finance Something?
Finance a business has gone a long way over the years and many companies have been liquidated due to payment of debts which is greater than the assets of the company and mismanagement of funds.
What does it mean to Finance Something?
Finance Something means the act and way of providing funds for starting or running a business. It can also be for personal expenses or for buying something like Car or House. It can also be defined as the act of providing capital for business. Capital can be any durable goods or money or wealth that can be used in starting a business.
Financing can be in two ways:-
- Debt Financing
- Equity Financing
Debts are funds that can be refundable. Equity cannot be refunded. Rather takes a path in which funds or capital are distributed into a business or corporation by shareholders for the purpose of getting a maximum profit when the corporation increases in value.
Debt Financing
Debt Financing is one of the most familiar methods of sourcing funds to run a business organization. Lenders must be paid back with interest in the exchange for the use of their money to start your business or running your business.
In debt financing, the debt must be repaid at an agreed and stipulated time. Most people are familiar with debt as everybody borrows or lends money or any other thing daily.
They also understand that debt must always be repaid. Some lenders collect their money in installments like in the case of Car Financing companies. They provide you with their car and you pay them a specific amount of money monthly till the amount for the vehicle plus interest will complete. These people gain more on the vehicle as the real amount or the worth of the car is passed as you provide them their installments monthly basis.
Equity Financing
Equity Financing gives everyone equal right in the business. Investors buy shares from a company and wait for the company to increase in value and they have their profits for the investments. The reward is called dividends.
They all run the affairs of the corporation together or they have someone in charge of the business on their behalf. To start an equity financing, a business owner might decide to sell 10% of the business stocks to investors for the purpose of using the money for financing the business.
The investors might get nothing if the business does not yield any profit. The investor gets his own share of the profit to the company as dividends if the company has yielded and also increases in value.
In companies that have equity financing, the investors bear all the risk. An investor always wants to have his opinion known in the corporation. In return operate the corporation together with the original owner of the business and also put his money in the running of the business. He claims some percentage of the future earnings of the company.
Some companies try financing their company in both debt and equity. Capital budgeting is usually put in place to know the cost of capital. Cost of capital is the necessary and required amount of money or funds or capital that are necessary for capital budgeting in financing a business.
Some company runs their business basically on debts while some on equity and some practice both. They sell their shares to investors and at the same time take loans from external sources. At the end, when the profit is yielded, the debt is paid as it’s a liability. From this, the net worth of the company is known. The investors share the money according to the percentage of shares bought from the company.
READ: What benefits from the reconstruction finance corporation?
Financing a business has gone a long way over the years and many companies have been liquidated due to payment of debts which is greater than the assets of the company and mismanagement of funds. A company should have good financial management and financial accounting which gives reports of every business transaction and how money is being spent in the company.
Ques – Ans about Finance meaning
Qn. 1) Does financing a car mean you own it?
Ans: Yes, financing a car means that the car belongs to that person it doesn’t matter whether it is financed or not. The owner only needs to pay the loan installments on time. Also, there is an option to sell the financed cars. And a person can only sell a thing or property if they own it.
Qn. 2) How does finance work?
Ans: Financing is simply taking money from a party or bank and use that amount for some work like car buying, home, business startup, marriage, etc and then that bank or your financer gives you the option to return all money in one payment or you can opt for installments payment. Both terms will be applicable with interest rates on lent money.
Qn. 3) Is it a good idea to finance a car?
Ans: Buying a car with finance money have their own advantages like if you have got a secure job and have sufficient income then you can go for Car Financing and will be able to pay your installments on time. Buying a car with finance will save you from spending lots of money at one time. Of course, you have to pay some interest amount on loan money.
Qn. 4) How do I finance a car with no credit?
Ans: You will definitely feel some difficulties in car financing with no credit, but some companies offer car loans when you have zero credit. Carmax finance with bad credit and no credit too. But when financing with no credit, then you might face some higher internet rates on your loan amount and also might face some extra paperwork.
