WHAT IS FINANCE

 

Financing is the cash, fund and investment processes necessary for businesses to carry out their activities. Private banks or government institutions are organizations that can generate funds for businesses. The use of finance is very important for businesses to start their commercial activities quickly.

Financing is another branch of leveraging the time axis of money. Financing deals with this as well, as in an eco-system some individuals work to earn income and some individuals spend that money to invest that money in the system as it will create a market.

Financing covers processes such as purchasing and investing. Financing is divided into two, equity financing and debt financing. The only feature that distinguishes the two from each other is the lack of repayment of equity financing. In addition, equity financing does not have any financial burden. Borrowing financing, on the other hand, has to be repaid and poses a risk due to the interest caused by the loan. However, it is more profitable than equity financing due to issues such as tax deductions.

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You don't have to pay back when it comes to the benefits of equity financing. Since there is no repayment, there is no monthly payment.

WHAT IS FINANCE

DİSADVANTAGES OF EQUİTY FİNANCİNG

There are disadvantages to equity financing such as:

•        You may have to recruit new partners to your company in equity financing. New partners can keep the share ratio high according to the company's profitability.

•        You will also need to consult your investors before making a decision. Your company is no longer just yours, and if the investor owns more than 50% of your company, you have a boss to answer for.

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DEBT FINANCING

It is the most common type of financing. It can usually be obtained from bank institutions. It has repayment and is usually obliged to pay the money used as interest. In large sums, bank institutions may ask for a mortgage in return. The advantages of debt financing are as follows.

·         Lenders have no say in your company's method.

·         When you close your loan debt, you have no relationship with the lenders.

·         You can use the paid interest within the scope of tax and deduct it from tax.

·         In addition to these advantages, of course, there are also disadvantages of debt financing;

·         If you're a small business and have a low credit score, it's difficult to get debt financing.

·         When the economy is going bad, you may face payment difficulties.