Financing Methods
Financing methods are proposed because all companies need financial resources to continue their business life. Access to these resources is done in different ways. Funding is necessary to complete ongoing projects and the progress of the company. Now, the process of trying to create, collect and increase capital is called financing. The purpose of doing this process is investment, profitability, reducing risk and meeting economic needs.
Methods of Financing Companies
Financing methods are divided into two categories: internal and external. Each of these two methods also has its own subsets.
A) Internal Financing
Financing that is done by internal factors is internal financing. For example, if a company obtains its required capital from the dividends of the sold shares, it is internal financing. Internal financing is done in 3 ways:
1. Through Capital Increase
In this method, the company provides the amount of capital it needs through the sale of shares and the acquisition of cash.
2. Through the Sale of Assets
In this method, the company sells land, buildings, machinery, or even shares of the company that it owns a part of.
3. Through the Founders
Sometimes financing is provided by the founders. They compensate for the lack of funds and their shares undergo changes accordingly.
B) External Financing
If the lack of funds is compensated by any means outside the company, it is external financing. For example, receiving a loan from a bank can be considered as a form of external funding. This type of financing is also called debt-based financing; Because as a result, the company becomes indebted to the supplier.
This method also includes several subsets:
1. By Taking Loans From Banks, Institutions or Domestic Investors
In some cases, banks compensate their financial needs and deficits by using bank facilities and loans. In this method, the company must return more amount than what it received as profit. This factor will have a great impact on the profit and loss of the company.
2. Through Banks or Foreign Investors
This method is used in large projects such as oil and gas projects. Such projects require huge capital, and in return, the company is committed to repayment through profits, products and services.
3. External Facilities
While providing these facilities, foreign countries provide capital or machinery to companies and have demands from them in return.
4. Advance Receipts of the Company
In some cases, the company per sells to finance its projects. As a result, he/she completes his/her ongoing project or produces products with the advance amount he/she has obtained in this way.
Up To Sum
Financing process is one of the needs of every company. This issue is considered as one of the basic elements for starting a business and one of the requirements for the continuation of the company’s life. Every company needs financing during its lifetime, which compensates this weakness through different methods and depending on its conditions and situation. The projects for which every company provides capital can include development and investment plans, repairs, etc.
