Types of Finance with Explanation

Finance refers to the administration, creation, and analysis of money and investments. Budgeting, borrowing, forecasting, investing, lending, and saving are all examples of financial management. To put it another way, finance is the study of managing money and the process of getting it. Click here to know about entrepreneurship meaning.

Types of Finance

There are two Main types of Finance

  • Debt Finance
  • Equity Finance

Other types of finance are

  • Public Finance
  • Personal Finance
  • Corporate Finance
  • Private Finance

Debt Finance

Debt finance refers to the money you borrow to keep or manage your firm. The moneylender does not have control over the debt; the borrower must return the principal amount plus the agreed-upon interest rate. The interest rate is usually decided by the loan amount, duration, reason for borrowing, kind of funding, and inflation rate.

Debt financing can be divided into three categories:

  • Short Term
  • Medium Term
  • long-term goals

Equity Finance

Equity financing is a traditional method of acquiring funds for a firm by issuing or selling stock. This is one of the most significant distinctions between equity and debt financing. This type of funding is typically used for seed funding for new firms and start-ups. This type of financing is used by well-known companies to raise more funds for business expansion.

Acquisitions and mergers are business transactions in which the ownership of companies, other business organizations, or their operating units are transferred to or consolidated with another company or business organization.

The following are the other categories of finance:

Public Finance

The study of the state’s expenditures and revenues is known as public finance. It only considers the finances of the government. The collection of funds and their distribution among various sectors of state operations that are regarded as essential responsibilities or duties of the government are included in the scope of public finance.

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There are three different categories of public finance:

  • Public Expenditure

The expenses incurred by the government for its upkeep as well as the welfare and preservation of the economy, society, and nation are referred to as public expenditures.

  • Public Revenue

In general, public revenues refer to all receipts and money that the government receives during a certain period, regardless of its nature or source. It will also include any government-issued loans. It will only contain income from revenue resources, such as taxes, prices, fees, penalties, fines, and gifts.

  • Public Debt

The term “public debt” refers to the loans taken out as a source of public funds, which come with a payback obligation to individuals as well as interest.

Personal Finance

Personal finance refers to the application of financial principles to a family’s or individual’s financial decisions. It describes how families or individuals get, budget, spend, and save monetary resources through time, taking into account various future life events and financial hazards. 

Public Finance

Corporate finance refers to the financial aspects of running a business. It is a department or division that supervises a company’s financial functions. The basic goal of corporate finance is to maximise shareholder value through short- and long-term financial planning as well as the implementation of various methods.

Private Finance

Private finance is a type of corporate financing that helps a company raise funds in a short amount of time to avoid financial troubles. Essentially, this strategy aids a company that is not listed on a stock exchange or is unable to receive financing through such markets. A charitable organisation can benefit from a private financial plan.

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