Finance and the Source of Financing

According to Charles. J Woelfel finance could mean

• To raise money necessary to organize, reorganize, or extend an enterprise, whether by the sale of stocks, bonds, or notes or otherwise.
• The theory and practice of monetary credit, banking, and promotion operations in the most comprehensive sense. It includes money, credit, banking, securities, investment, speculation, foreign exchange, promotion, reorganization, underwriting, brokerage, trusts, etc.
• Originally, the raising of money by taxes or bond issues and the administration of revenues and expenditures by a government. This is now known as Public Finance.

Finance is the study and practice of money and money-related instruments. Generally Speaking, finance represents money management and the process of acquiring needed funds to execute certain projects. There are diverse sources of finance:

Equity Financing.

Equity financing has to do with raising capital through sales of ownership stakes (shares). This mode of financing is especially important during a company’s start-up stage. investors here are not creditors. It is usually the best option for companies with poor credit history. On the other hand, dilution of ownership, the need to meet up with payment of dividend and tax related obligations can as well constitute challenges.

Debt Financing

Debt financing involves raising capital privately through loans from other companies, banks, or financial institutions and publicly via debt issue. One does not have to be scared of dilution in this case. It can really fuel growth, especially long-term debt. Because interest is tax-deductible, it can be deducted from total income when calculating taxable income. On the flip sides, repayment obligation must be complied with, sometimes requires good credit history and increased debt ratio can be unattractive to investors

Retained Earnings

The net income after expenses and other obligations have been deducted from the company earnings. It's an inexpensive form of financing, though the shareholders may frown at it.

Debt/Equity Financing/Retained Earnings

Companies will utilize a mixture of equity and debt finance, as well as making use of retained profits.

Other Financing Sources

According to CFI, other funding sources include crowdfunding, donations or grants, and subsidies that may not have a direct requirement for return on investment (ROI).