Different Types of Finance

Finance is a vast subject that deals with money entities. Accounting and finance are often used together but are entirely different fields. Finance deals with the managing of funds and multiplying them with the concern on risks and uncertainties in the best interest of the company. It includes crucial aspects like:

  • Allotment of assets
  • Allotment of liabilities and funds
  • Finding mediums to reap the most out of a company or firm.

Types of finances

There are mainly two different types of finances. They are:

  • Debt Finance
  • Equity Finance

The other types of finances include

  • Public finance
  • Corporate Finance
  • Personal Finance
  • Private Finance

Let’s find out more about the types of finances in this article:

Debt Finance

The cash that you collect or allocate to start or run your business is called debt finance. One important aspect about this kind of finance is that it does not provide ownership to the person lending the money and the receiver should return the principal amount with interest. This is again classified into three types:

Debt Finance

Short term: When a loan is required for one to one hundred and eighty days, it is called short term finance and is usually borrowed to cover daily activities or temporary coverage’s.

Medium-term: Any loan which is borrowed for more than one hundred and eight days and less than a year is called medium term finance. This type of finance is employed by small businesses to purchase pieces of equipment or fix assets.

Long term: Loans that are generally extended over a year fall under the category of long term finances. They’re mostly used to buy buildings, land or property for business or official use.

Equity finance

It is a type of finance that is effective in raising the capital of business by offering the shares of a company. This type of finance is essential to seed funding for small scale businesses and startups. It basically involves offering the equity shares of a company in an owner’s unit for a specific company. For example, if a company is offering 10,000 equity shares to the investors, and an investor buys 1000 if them, then he holds 10% of the company’s ownership.

Public Finance

As the name suggests, it mainly deals with the study of the state’s income and expenditure. Public finance includes all the government-related finances, which include fund collection and distribution among different activities etc.

Public Finance

Corporate finance

It is a type of finance essential for running a corporation. Their primary aim is to maximize shareholder value, either by short term or long term financial planning and implementation of different strategies.

Personal Finance

It involves the application of all the financial rules and regulations to govern the monetary decisions of a company or an individual in particular.

Private finance

It is a contrary method to the corporate finance in helping a company to raise funds to avoid financial problems in future. It is useful for companies that are not listed on security exchanges and are also applicable to non-profit organizations.

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