The concept of financing is closely linked to the business world , as a way of obtaining funding to launch projects or face obstacles and unforeseen events, but it also plays a very important role in the personal sphere to optimize the family economy.
In At UCI we explain what the concept of financing refers to and the different options that citizens have to achieve their goals, from buying a home to paying off an unexpected bill.
Financing concept
According to the Royal Spanish Academy , financing consists of “contributions of the money needed for a company or to cover the expenses of an activity or a work .”
Financing is, therefore, the set of monetary resources that we need to launch a project, whether professional or personal, such as setting up a business, buying a new mattress for the home, fixing an unexpected humidity problem in the home or dealing with an unexpected bill.
Therefore, financing is an important driver for the development of both companies and people, as it allows companies or people to access resources to carry out their activities, plan their future or improve their situation . We do not always have sufficient liquidity to undertake new projects or deal with unforeseen events, so financing becomes a very useful tool if planned correctly.
Sources of financing
Where can these resources come from? There are different sources of financing, which are classified according to their origin, temporality and level of demand.
Thus, regarding the origin of the financial endowment, we are talking about:
• Internal financing: when the person themselves provides the funds from their own financial means. These would be, for example, the savings we set aside to buy a home, the monthly salary we receive or the income we receive from the sale of a piece of jewellery to be able to carry out work at home.
• External financing: when the resources are provided by a third party. This is the case of the loan that the bank grants us for the purchase of a property, the help that the Public Administration provides us to improve the energy efficiency of the home or the money that a relative lends us to fix a car breakdown.
Depending on the level of demandability of financing, resources are distributed between:
• Own financing : composed of those resources that do not have to be returned, such as the proceeds from a lottery, a non-refundable grant or the returns generated by an investment fund.
• External financing : is that which must be returned under certain conditions of time and form, since it has been provided by third parties, like any credit granted by a financial institution.
Within external financing, depending on its temporality , it is necessary to distinguish between:
• Short-term financing: refers to income that must be repaid in a short period of time, around one year, such as a six-month quick loan.
• Long-term financing: when the period for repaying the amount owed exceeds 12 months, as would be the case with a mortgage, or there is no repayment period, such as financial assistance provided by a family member.
However, it should be noted that, both in the business and personal spheres, the most common means of accessing financing are loans and credits from financial institutions .
