Choose The Better 1 _Finance Option For You!
The origin of _finance is proved by the evidence that this is also old like human life on this earth. Word _finance is a French word. At the start of the eighteen century, the word _finance was adopted by the English. English means “the management of money.” _Finance is the study of managing funds and also involves such activities as budgeting, borrowing, forecasting, investing lending, and saving.
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Types of Finance
There are mainly two types of finance:
The other types of finance are
- Public Finance,
- Personal Finance,
- Corporate Finance and
- Private Finance.
Each of the types is explained below with definition and explanation.
The cash or payment that you acquire to grow or run your business is known as debit_finance. But the debit _finance couldn’t provide the owner to control the moneylender; there is a disadvantage for borrowers that they repeat the principal amount and also give the agreed-upon interest rate. Most of the interest rate is determined and based on the loan amount. Most of the purposes for borrowing are the specific type of finance and inflation rate.
Debt finance can be classified into three types:
- Medium-term and
Short-term Debt Finance:
Most loans need for a short period of more than one to one hundred days and eighty days which is called short-term debit _finance. Short-term debt _finance loans are borrowed just to cover temporary or occasional requirements and it also used to cover the shortage of _finance. Sometimes short-term _finance is also used in daily business activities such as paying wages to the staff or getting raw materials. Many of the borrowers get short-term _finance loans depending on most of their income on repaying. The most popular kind of short-term debt _finance is lines of credit from the business’s suppliers.
Other types of short-term _finance include trade credit, credit cards, bill discounting, bank overdrafts, working capital loans, small company loans, retail bank short-term loans, and client advances.
Medium-term Debt Finance:
The loan which is required for emergencies and for short periods of more than one hundred and eighty to three hundred and sixty-five days is called medium-term debt _finance. Most of the fund-using methods depend on the type of business. Many businesses repay their loan from the sources of cash-flow of business. Many business owners choose this type of _finance to purchase equipment, fixed assets, and the like.
Sometimes small business owners or startups use medium-term loan financing to meet the circulation of funds. Because new businesses have to pay in advance to suppliers for every purchase of equipment, machinery, inventory, and the like. Rental finance, lease finance, medium-term credit from commercial banks, and issuance of bonds/debentures are some examples of medium-term loan _finance
Long-term Debt Finance:
Generally, loans required for more than 365 days are called long-term loan financing. This type of finance is mostly needed to buy a plant, land, or restructuring offices or buildings for a business. Long-term finance has better interest rates than short-term finance. The repayment period of this loan is usually five, ten, or twenty years
home loans and Car loans are two big examples of long-term finance. Issuance of Bonds / Debentures, Issuance of Preferred Shares, Issuance of Equity Shares, Long Term Loans from Government, Financial Services Institutions or Investment Banks, Funds from Venture Funding or Investors, are other examples of Long Term Loan _Finance.
Equity finance is a great way for a business to raise capital by offering issues or company shares. This is one of the biggest differences between debt finance and equity finance. This finance is usually used to finance seeds for beginners and new businesses. Leading companies use this finance to raise additional capital to expand their business.
Equity finance is usually raised through the offering of issues or business equity shares. Basically, each share is the owner’s unit for that particular company. For example, if the company has offered 10,000 equity shares to public investors. An investor buys 1000 equity shares of the company, which means he owns 10% of the company.
The other types of finance are discussed below:
Public finance deals with the study of state expenditures and revenues. It only considers government finances. The scope of public finance includes the collection of funds and their distribution among the various sectors of state activities which are considered essential functions or duties of the government.
Public finance can be classified into three types:
- Public Expenditure
- Public Revenues
- Public Debt
i. Public Expenditure:
The expenses that are given by the government just like a grant is called public expenditures. These expenditures are for upkeep as well as the welfare and preservation of the economy, and society.
ii. Public Revenues:
Broadly public revenue includes all receipts and revenues regardless of their nature and source, which the government receives during any given period. This will include loans taken by the government. In short, it will only include income from revenue sources including taxes, prices, fees, penalties, fines, gifts, etc.
iii. Public Debt:
Public debt means a debt taken out which is a source of public finance which is accompanied by the obligation to pay individuals and interest.
Personal _finance is the application of _finance’s in which we tell us about the monetary decisions of a family or an individual. Personal _finance also includes how families and individuals get, budget, spend and accumulate monetary resources over time, taking into account various potential life events and financial risks. The financial status examines the household cash flows and net worth to determine the available personal resources. Net worth is an individual’s balance sheet, calculated by adding all assets under that individual’s control and subtracting all obligations from the household at the same time.
Corporate finance encompasses all financial operations associated with running a business. It is a department or division that supervises a company’s financial activities. The basic goal of corporate finance is to maximize shareholder value through short-term and long-term financial planning and the implementation of various methods.
Private finance identifies an alternative method of corporate finance that helps a company raise funds to avoid financial problems over a limited period. Basically, this method helps a company that is not listed on the securities exchange or is unable to raise funds in such markets. A private financial plan can also be suitable for a non-profit organization.