1. Definition

Financing refers to the process of providing financial resources to cover expenses or investments. It includes all activities involved in acquiring, using, and repaying capital. Financing can be achieved through equity, debt, or hybrid financial instruments and is a fundamental aspect of financial management aimed at achieving business or personal objectives.

2. Applications

Financing is applied in various areas:

• Businesses:
  Companies use financing to invest in machinery, buildings, or research, cover operational expenses, or fund strategic expansions.
• Individuals:
  In personal finance, it is often used for major purchases, such as buying a home, financing a car, or paying for education.
• Public Sector:
  Governments and public institutions finance infrastructure projects, educational systems, or social programs through loans, tax revenues, or bonds.
• Start-ups:
  Emerging businesses rely on financing to develop business models, enter markets, and cover operational costs.

3. Types of Financing

1. Equity Financing:

   • Capital comes from internal sources, such as profits or shareholder contributions.
   • Advantages: No debt, greater independence.
   • Disadvantages: Limited funds, requires risk-taking.

2. Debt Financing:

   • Capital is borrowed from external sources, such as banks or investors.
   • Examples: Loans, bonds, or leasing.
   • Advantages: Large sums available, no equity dilution.
   • Disadvantages: Interest costs, repayment obligations.

3. Hybrid Financing:

   • A combination of equity and debt financing.
   • Examples: Mezzanine capital, convertible bonds.

4. Short-term Financing:

   • Funds acquired for a period of less than a year.
   • Examples: Working capital loans, trade credit.

5. Long-term Financing:

   • Capital provided over several years.
   • Examples: Mortgage loans, project financing.

Selecting the right type of financing is crucial for the financial success and stability of businesses, individuals, or public entities.