Understand The Types Of Financing Financial Institutions – Currently, there are many financial companies engaged in financing. The term financing is synonymous with loans, credit, or installments. There are many types Of Financing and you can choose according to your needs.
Various Categories And Types Of Financing
Financing is funding from the lender to be used by the borrower to meet his needs. Both parties must know the purpose of using the funds. At maturity, the recipient of the financing is required to return all the funds along with various fees and rewards or a profit-sharing scheme for the lender. The main thing about providing financing is the trust of the financier or financial institution in the customer or consumer. Financing is carried out on a certain agreement agreed by both parties.
Types Of Financing Based On Use
Use-based financing relates to the benefits provided by financing. The types of financing are based on their use, seen from the benefits for business owners. There are two types of financing based on their use.
Investment financing is a type of financing that is usually used for business expansion or rehabilitation purposes. So, this type of financing is given to business owners who intend to expand their business even more. The company receiving investment financing is considered a company that is quite stable and can provide regular returns.
Working Capital Financing
Working capital financing is a type of financing provided to increase production in the company’s operations. This type of financing is given to companies that have the potential to grow but lack working capital. For example, a home bag manufacturing company, which already has many orders but is not fulfilled due to a lack of capital to buy raw materials or sewing machines.
Types Of Financing Based On Purpose
Furthermore, there are three types of financing that are seen based on the purpose of their use.
This type of financing is provided for the need to buy goods or other types of needs which are consumer products. In a sense, the product purchased is to be used to meet daily needs, not for business or making a profit.
Productive financing is given to recipients of financing to meet production needs. It is assumed that without such financing, this need cannot be realized.
Types Of Financing Based On The Term
Based on the term or type of contract, the types of financing are divided into short-term financing, medium-term financing, and long-term financing and the last one is demand loan or calls loan.
Short Term Financing
In this type of financing, the financing period is quite short, it can be several weeks or several months. The maximum return on short-term financing is for 1 year.
For medium-term financing, the minimum financing term is one year and the maximum financing term is three years.
Demand Loan Or Call Loan
The type of financing based on the last term is Demand Loan or Call Loan. This type of financing allows the lender to ask for the funds provided at any time or at any time.