Nature of financing refers to the process of raising money, source and purpose of use. The nature of the different types of financing depends on who is raising the money, what the money will be used for, and where the funding is coming from. Generally the nature of financing can be divided into four main categories:
1) Personal Finance
2) Public Finance
3) Non-business Finance
4) Business Finance
1) Personal Finance
Personal finance is about determining the source and amount of an individual’s income, and spending that income for the benefit of family members. A person has income and expenditure sectors. Among the many expenses that a person needs, the most important expenses are met on a priority basis. If the personal income is not sufficient for the expenses, money is collected as loans from various relatives, friends, financial institution. In personal finance, regular expenses are fixed in line with the regular income.
2) Government finance
Government financing refers to determining the amount of annual expenditure of the government in certain sectors and from which sources that money will be collected. In the context of government financing, it is discussed how much its annual expenditure will be in any sector and from which sources that money can be collected. Government has different revenue and expenditure sectors. In public financing, first determining the amount of expenditure after that funds are collected.
In government financing, the revenue and expenditure sectors are outlined through the budget. If the expenditure more than the income it is called deficit budget. Again, the amount of income may be more than the expenditure, then it is called a discretionary budget.
“The main goal of government funding is social welfare”.
The government has to spend money in many sectors for the overall development of the country, such as roads, bridges, government educational institutions, government hospitals, law and order, defense, social infrastructure, etc. To meet this expenditure, the government has to collect money from various sources, such as income tax, sales tax, import duty, export duty, sale of treasury bills etc. Many times, the government takes foreign loans from various sources.
3) Financing for Non-profit organization:
The process of collecting funds (such as hospitals, orphanages, etc.) and using them properly is called non-profit organization financing. There are some institutions or organizations in the society, whose main objective is to provide services to the deprived people, not to earn profit. To run such organizations, money is needed and that money needs efficient management. In this case, the role of financing is to identify the source of fund collection and to achieve the service objective of the organization through its proper use. For example, a hospital is not a profit-based organization. However, these organizations need fund. They arrange fund through various grants. Therefore, the main objective of financing non-profit organizations is to identify the sources of funds and ensure their proper use to achieve the objectives.
4) Business Financing
Business finance refers to the amount of capital required to run a business properly, from which sources it will be collected and in which sector it will be invested. Business finance plays an important role in raising funds and investing in profitable sectors to achieve the goals of the business. The most important form or type of financing is business finance. Business means an organization that bears the risk of profit and loss for the purpose of making a profit. The financing process used for investment is called business financing.
Considering the discussion above, it can be said that business finance is the process of ensuring the collection and proper utilization of funds so as to achieve the goals of the organization. Read more here…
Business finance also depends on business structures. All over the world 4 types of common business structures found.
1) Sole proprietorships
2) Partnerships
3) Limited liability company (LLC)
4) Public limited company (PLC)
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