What is Finance and what are its types ?

What is Finance and what are its types

Finance is basically the management of large amount of money especially by government organizations or large companies or department or forms. In other words finance is also term that is used to provide funding to a person or an enterprise.

If you are running a business then it is important for you to have detail knowledge regarding the finance. Each and every business has the Finance Department that handles all the monetary task and situations. If you are one of those who do not get proper knowledge regarding the finance then you can also take help from the Google finance app. You can easily download this application from Google Play store in your device and get started. Here in today’s article we are going to describe you details about the finance and the types of Finance available. You are suggested to take a look over the details carefully and completely.

Finance plays a very important role in business.  In every business activity, finance place just like a backbone. For example if you want to get a car then it is important to plan that are you having enough finance to spend the money. Or we can also say that does your finance allow you to spend this amount of money in purchasing stuff.

Types of finance

There are two types of Finance the first one is debt financing and another one is equity financing. Let us understand each type of Finance carefully and completely.  The details we are providing in the below given section will also help you while working in the finance department. Please take a look.

Debt Finance

Debt finance is the cash that is required to maintain or run the business. This type of penis does not provide the money lender any ownership control but in this finance the lender get profit in the form of interest percentage. Interest percentage depends upon that principal amount, time and rate of the interest. There are three types of Debt Finance the first one is short term finance and the second one is medium term finance and the third one is long term Finance.  In the short term finance, people lend money for one day to 180 days. In simple words we can say that if a person is taking a loan for maximum 180 days then it will be known as short term Finance. This type of loan is used in covering temporary requirements or completing the shortage of funds in the business.  In the medium term finance the loans gets usually taken for 180 days to 365 days. For example if the business owner wants to purchase of machinery, equipment or want to invest in any inventories then he or she can take the medium term Finance. Now the third one is long term Finance. In this the loan gets approved for more than 365 days that is for more than one year. Usually these type of loan get approved when someone is willing to purchase a land, a plant or a building or office and other.

Equity Finance

Another type of Finance is equity Finance. Equity finance is a typical type of loan taking procedure in which the company issues its shares. There is a major difference between equity finance and Debt Finance.  Equity finance option is basically required when someone is willing to start a new business. Let us understand equity finance with an example.  Suppose an organization have offered 200000 Equity stocks to the investors in public. Equity stocks then you will become the 10% owner of the company. That is all equity finance is about.

Hence these are the two main types of Finance that one must know.