Types of Finances Explained

The term finance refers to the management of money and involves managing funds through lending, investing, borrowing, saving, budgeting, and planning. Finance is how you manage your funds along with acquiring the funds required. The two main financial types are equity finance and debt finance while the others include:

• Corporate finance

• Public finance

• Private finance

• Personal finance

Equity Finance

Businesses offer shares of their companies to raise capital. Startups often use this money for seed financing while established businesses often offer shares to raise capital for business expansion. Every person that owns a share has partial ownership of the company and may make a profit from the shares if the company does well.

Debt Finance

Both businesses and individuals usually have to deal with debt finance at one point or another. This type of finance refers to the borrowing of money to either run a business or for personal reasons. The principal amount must be paid back according to a pre-arranged interest rate and can be classified into short-term, midterm, and long-term debt. Examples of debt finance include trade credit, capital loans, credit cards, loans for small businesses, and many others.

Corporate Finance

Corporate finance refers to all of the financial activities that are associated with running a corporation. There is a separate division in the company that oversees the financial aspects of the business intending to maximize the value of shares through strategic financial planning.

Public Finance

Public finance refers to the income and expenses incurred by the government at different levels. This form of finance has a wide scope that includes public debt, public revenues, public expenditures, and the collection and allocation of funds across different sectors of government activities. Income sources for public finance can come from gifts, fines, fees, taxes, and more. Public finance may include public debt when the government has taken out loans and has repayment obligations to fulfill.

Private Finance

When a company doesn't want to raise funds by offering shares or is in a position where it can't be on the securities exchange it will have to raise money privately. Non-profit organizations may have to put together a private financial plan to secure funds.

Personal Finance

This is finance as it applies to the monetary decisions made by either an individual or a family. The activities include saving, spending, and budgeting money for both the short and the long term. Personal finance should take into account financial risks and future potential life events based on current net worth and the cash flow in the household.

A personal risk assessment should also be done by families and individuals that are considering the future implications of financial matters in the future. For example, there are times when a lawyer may be required such as a sports injury attorney, and there should be an emergency fund set up to meet these needs. Anyone that requires assistance with such an injury may contact ASL LLP for further information.