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.
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| 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.
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