Funding sources | Sources of financing

Ways used by organizations to obtain the necessary financial resources and carry out a certain activity.

What are the sources of financing?

The sources of financing are the channels used by organizations and individuals to obtain the necessary financial resources and carry out a certain activity.

These sources of financing grant a margin of guarantees,  allowing not only the daily development of their functions but also the realization of new projects and goals.

Among the main ones used today is the contribution of a financial investment entity, a  bank,  personal savings or contributions by partners or shareholders of the organization, or even debts with certain suppliers.

Characteristics of financing sources

The main characteristics of the sources of financing are listed below:

• They can be internal or external to the organization.
• They must make a profit for the investment to be profitable.
• If they have participated in the profits (profits), this is proportional to the capital contribution.
• They are fundamental to the functioning of the organization.
• Its purpose is to carry out a certain activity, for example, to start, develop or finish a specific project.
• They provide monetary benefits to the organization.
• They must be carried out in a respective control.
• They offer guarantee margins regarding the achievement of goals and objectives and in certain cases their permanence in the market.
• They include equity and liabilities.

Types of funding sources

In organizations, the sources of financing can be distinguished mainly by internal and external.

internal sources

Internal sources, also known as social capital, are those that are found within the contributions of the partners.

That is to say that, in these, the capital comes from the money that the organization owns.

external sources

External refers to capital lent by a third party that does not fully belong to the organization, such as a shareholder or a financial institution that expects a profit in return.

In this, different methods are used by companies to find external financing, such as crowdfunding.

Therefore, the main concepts that comprise external sources of financing are:

• Loans.
• Crowdfunding.
• Crowdlending.
• State credits.
• Leasing.
• I will pay.
• Public subsidies.
• Sale of fixed assets.
• Commercial discounts.
• Credit line.

According to the deadline

In turn, the sources of financing can be classified according to the corresponding obligation period:

• Short term: one that includes a monetary obligation with a specific lender and generally less than two semesters.
• Long-term: one that includes a monetary obligation with a certain lender for several years.

Importance of financing sources

The importance of financing sources lies in the need that arises in organizations when carrying out certain projects or executing their daily functions without much difficulty. The sources of financing allow operating as a set of monetary resources, in such a way that they are considered the fuel of the company since they enable the successful development of a business. Ultimately, these are the ones that allow a company to meet its objectives and achieve its goals.

The fact that a company uses sources of financing is not only common, but it can be necessary. A company that does not enjoy these sources is going to move with great difficulty, due to the debts that will arise in a short time.

Examples of funding sources

Some examples of funding sources are listed below:

• Companies dedicated to investment capital, looking for organizations to finance in exchange for a percentage of shares.
• Subsidies by the  State for carrying out projects that generate a common good for society.
• Loans granted by banks for the financing of companies are one of the main sources of financing used.
• Personal savings are a source of financing for small projects and one-person micro-businesses.
• The economic reserves and savings that a company has.
• Methods, such as crowdfunding, are a source of financing.