All businesses need finance at some point. If you are starting your business, looking to expand the business, buy equipment, etc. finance helps you a lot. But, Do you know the term “finance”? Do you familiar with the types of finance?
No, Don’t worry.
In this blog, we will explore the overview of “finance” and also its types.
Let’s begin with
Overview of finance
Evidence showed that the source of finance is also old, as a human being on this globe. Initially, the term finance is a french word. In the eighteenth century, it was chosen by “the management of Money”.
What do you mean by finance?
finance is the management of funds and money. It includes exercises like budgeting, borrowing, investing, forecasting, and profit.
In simple words, finance is the representation of money management and the method of acquiring funds.
Examples of finance
The simplest way to know finance is through examples. Some of the paths and jobs perform a wide range of financial exercises. Following is the list of most obvious examples:
- Borrowing money from corporate investors by issuing bonds on behalf of a public company.
- Storing personal money in high-interest saving accounts.
- Lending personal money in funds, bonds, or Guarantee investment certificates (GICs).
Do You Know?
|Who is the father of finance?|
Eugene F. Fama 2013, Nobel laureate in Economic Science, is popularly recognized as a father of finance. His research in both academic and investment communities is very famous.
Now, let start discussing the Types of finance.
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Types of finance
Generally, there are two types of finance:
(A) Debt finance
(B) Equity finance
The cash that businesses use to maintain and run their business is Debt finance.
Debt finance does not give ownership charge to the investor. The borrower must repay the first amount with the interest rate. Mainly, the interest rate is fixed by the loan amount, the purpose of borrowing, duration, and inflation rate.
Debt finance is divided into three parts:
Short-term Debt finance
The loans for more than 1 – 180 days are called Short-term Debt finance. These loans are mainly used for covering the shortage of finance. And also for short or occasional requirements. The repaying amount of Short-term Debt finance is based on the other sources of income.
Medium-term Debt finance
These loans are generally used for more than 180-365 days. The way of using the funds mainly depends on the nature of the business. The businesses usually return the loan from the sources of cash-flow of the company. Business selects medium-term debt finance to purchase types of equipment, fixed assets, etc.
Long-term Debt finance
The loans are required for more than 365 days in long-term Debt finance. This kind of loan is normally used for buying land, re-construction of offices and buildings, etc.
Long-term finance offers better interest rates than short-term finance. The debt finance usually has a repayment duration of 5, 10, or 20 years.
It is a traditional way of raising capital for businesses by issuing and offering their shares. This finance is generally applied for small fundings for beginners and new businesses. With the help of finance, famous companies boost their funds for the development of their businesses.
There are other types of finance too which can help you to grow your business. They are:
Public finance deals with the study of the expenditure and income of the state. It only considers the government finances. Public finance aims to collect the funds and their allocation between the sectors of state activities. It is a vital function and duty of the government.
Public finance is separated into three sections:
(a) Public Expenditure: Public Expenditure means the costs incurred by the government for its maintenance and the welfare and security of the economy, society, and the country.
(b) Public Revenue: It includes all the receipts and income, which the government takes during any given period. Public Revenue also includes the loan raised by the government.
It will hold only income from revenue resources, including taxes, fees, gifts, penalties, price, etc.
(c) Public Debt: Public debt means the loans increased, which is a source of public finance—it takes the repayment duty to the people and the interests.
Other Types of Finance
Personal finance includes how families or individuals get budget, spend and save monetary resources over a period.
It holds the financial activities to run a business. Corporate finance is a department that predicts the financial function of a company.
The main purpose of corporate finance is to maximize shareholder value through short-term and long-term financial planning.
It helps the company raise funds and avoids money difficulties in a short period. This method benefits those companies who are not able to get finance. A private financial plan is a best example for a non-profit corporation.
You Should Also Know
The 5 best ways to grow your business by financing.
First of all, start your business with your savings. Become a financer for your own company.
Loans from family and friends
You can take loans from your close friends and family members. But there is always negative thinking that they lose their money. But, if your company succeeds, there will be a strong bond formed.
The primary thing to keep in mind is that Venture capitalists are always looking for companies based on technology with high-growth potentials. Like, Information Technology, Biotechnology, and communication. Venture capitalists always expect a healthy return on their investment. Be sure to look for an investor who gives value to your business.
Angels are rich and retired individuals who invest in small businesses. These are willing to finance almost $25,000 to $100,000 on small firms. In return, they are asking for the right to supervise the company’s management system.
Bank loans are the most common use of funding in small and medium firms. All banks offer different benefits. All you need to do is you have to find the bank that meets your specific needs. And you also know that the banks are also finding the companies with good records and have excellent credits.
So, I hope you understand the types of finance well. You can use any finance for your business growth. You can also make your career in finance. There are some best career paths in finance. Like commercial banking, investment banking, insurance, audit, financial planning, equity research, etc. Get the best business finance assignment help.
Frequently Asked Questions
What are the main 3 areas of finance?
The three major areas of finance are as follows:
Investments and Financial Markets
Is there any math required for a degree in finance?
You need a knowledge of mathematics to learn some skills. Like analyzing, financial planning for saving goals, and assessing investment programs.