Definition of Financing

This time we will discuss the meaning of financing and its elements, objectives and types. Here’s the explanation …

Table of contents :

Definition of Financing

Purpose of Financing

Funding Element

Types of Financing

  1. Type of Financing Viewed from the Aspect of Use
  2. Types of Financing in terms of objectives
  3. Types of Financing in terms of time period
  4. Types of Financing in terms of collateral

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Definition of Financing

The term financing basically means I Believe, I Believe (I believe or I believe). Thus the definition of financing is:

Surrender of present economic value to trust in the hope of regaining the same economy in the future.

An action based on an agreement in the agreement there is service and remuneration (achievement and counter-achievement), both of which are separated by time.

Financing is a right, with the right of a person to use it for certain purposes, within a certain time limit and for certain considerations.

Purpose of Financing

The main objectives of providing financial loans include:

Seeking profit (profitability), that is, with the aim of obtaining disbursed financing results in the form of profits earned from profit sharing obtained from businesses managed by customers.

Safety or security, is the security of the achievement or the facilities provided must be guaranteed so that the goal of profitability can be achieved without significant obstacles.

Helping customers’ businesses, namely helping business customers who need funds, either investment funds or in the form of financing.

Helping the government, that is, the more funds are channeled by banks, the more development will increase in various sectors.

Funding Element

Funding is basically given on the basis of trust. So, giving financing means giving trust.

This means that the achievement given must be believed to be returned by the recipient of the financing according to the agreed time and terms.

 

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Based on this, the elements in financing include (Ali, 2008: 46):

There are two parties, namely the financing provider and the financing recipient.

  • Trust, namely the lender’s confidence that the loan recipient will return the loan according to the period and terms agreed by both parties.
  • Agreement, which is an agreement between a financing provider and a financing recipient
  • The period which is the agreed period of repayment / loan repayment.
  • Risk, is that the grace period for repayment can be a risk of bad credit (non-performing loan).
  • Reward, is an advantage over lending, a service we usually know as profit sharing or margin.

Types of Financing

In general, the types of financing can be seen from various aspects, including (Kasmir, 2002: 99-101):

1. Type of Financing Viewed from the Aspect of Use

  • Investment Financing is financing that is usually used for business expansion or building projects / factories or for rehabilitation purposes.
  • Working Capital Financing is a financing that is usually used for the purpose of increasing production operationally.

2. Types of Financing in terms of objectives

  • Consumptive, serves to get goods or other needs to meet consumption decisions.
  • Productive Financing, aims to enable the recipient of financing to achieve its goals.
  • Trade Financing, is used for trading purposes, usually to buy merchandise whose payment is expected from the sale of merchandise.

3. Types of Financing in terms of time period

  1. Short Term, namely a form of financing with a maximum term of 1 (one) year.
  2. Intermediate Term (Medium Term Financing) is a form of financing with a term of more than one year to three years.
  3. Long Term (Long Term Financing) is a form of financing with a term of more than three years.
  4. Demand Loan or Call Loan is a form of financing that can be requested at any time.

 

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4. Types of Financing in terms of collateral

  1. Guaranteed Financing, is a guaranteed financing, can be in the form of tangible or intangible goods or guarantees of people.
  2. Unsecured Financing, is financing that is provided without any guarantee for certain goods or people. This financing is given by calculating the business prospects and character and loyalty or good name of the prospective borrower so far.

 

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