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Simple English definitions for legal terms
financing
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A quick definition of financing:
Financing: Financing is the process of getting money to pay for something. It can be done by borrowing money from a bank or other financial institution, selling stocks or bonds, or using money generated by a company's operations. There are different types of financing, such as debt financing (borrowing money by issuing bonds or notes) and equity financing (raising money by selling shares in a business). Project financing is a type of funding used for large and expensive projects, where the lender looks primarily to the money generated by the project as security for the loan.
A more thorough explanation:
Definition: Financing refers to the act or process of raising or providing funds. It can also refer to the funds that are raised or provided.
Examples:
- Debt financing: This is when a company raises funds by issuing bonds or notes or by borrowing from a financial institution.
- Equity financing: This is when a company raises funds by issuing capital securities (shares in the business) rather than making loans or selling bonds.
- Project financing: This is a method of funding in which the lender looks primarily to the money generated by a single project as security for the loan. For example, a power plant may be funded through project financing, with the lender being paid from the money generated by the contracts for the facility's output (such as the electricity sold by the power plant).
These examples illustrate different types of financing methods that companies can use to raise funds. Debt financing involves borrowing money that must be repaid with interest, while equity financing involves selling ownership in the company. Project financing is a specialized type of financing used for large, complex projects that generate revenue over time.