ABCs of commercial project financing

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ABCs of commercial project financing Powered By Docstoc

Funding is the process of obtaining monetary resources needed to implement a project. In
principle, it involves a finanncial transaction in which a financier(s), usually a financial
institution provides resources to another party, so that it can perform some specific investment
agreed in advance. Unlike a loan, the resources funding must be invested in a manner agreed
in the contract.

The financier may or may not charge interest on the amount advanced in accordance with the
value and time of payment. Or may even not perform recovery of the amount in the event of
non-repayable financing.

Companies can source financing to raise money for new equipment or carry out an expansion,
while individuals can make loans to buy houses, cars, among other items of great value.

Financial institutions have various funding arrangements for individuals and legal entities, each
with a characteristic that makes it more appropriate to specific cases.

Companies need to raise capital to leverage new investments, and part of this capital may
originate from some form of financing. There are several ways for a company to finance its
activities, either through equity or other alternatives. Through equity an entity performs
self-financing, or can take a loan, or subsidies, etc.

Several sources of financing for enterprises can be categorized as follows: short-term financing
- the maturity (term) is less than one year, examples include bank loans, the discount line,
spontaneous funding, etc.

Long-term financing: the maturity (repayment period) exceeds one year, or there is no obligation
for repayment (capital). Examples include increases in capital, cash flow, sinking funds, bank
loans, bond issues, etc.

And the conditions also work according to the source: Internal finance: stocks, depreciation, etc,
are those funds that the company produces through its activity (profits reinvested in the
company). External financing: bank financing, issuance of bonds, capital, etc. These originate
from investors (shareholders or creditors).

Certain projects within companies have continuity determined by the possibility of obtaining
funding for specific projects, which take into account the risks of the investment by the financier
and the company and its shareholders.

Many people prefer to complete the financing of their purchases, although they may opt for
other financial transactions such as leasing and installment sales.

The amount of loans made and the deadline for payment to the lenders are important data for
studying the functioning of the economy of a country. Small entrepreneurs and small farmers
can also obtain financing as individuals.

Farmers make use of funding to cover costs of starting a new production cycle or to expand
their business. The financiers in this sector of the economy in many countries are banks and
government through specific programs.

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