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Funding refers to the amount of additional money a company needs to operate during a certain period of time. Some of the common funding options include investments such as debt financing, donations, equity, or traditional bank loans.
The business funding process aims to help companies achieve economic growth and is usually divided into three phases: pre-funding, funding, and post-funding.
Pre-funding involves gathering all the information needed to make an informed decision about whether or not to run a business funding strategy. This may include analyzing the business plan of a project, conducting market research, taking advice from industry experts, or looking for potential investors.
Once you have collected this information, you can begin the funding phase and start thinking about the allocation of money. During this stage, you will be working with financial lenders who are willing to assess how these funding opportunities will impact your financial future. This stage requires great communication between the company and lender as they must agree upon the funding amount as well as other conditions.
Finally, after funding a project, you will need to check whether your agreement includes paying back the investment received or not. If your post-funding process involves debt financing, then you will need to repay the loan. If you do not repay back your debts, you won't be able to execute any possible extension of future funding.
The difference between funding and financing is often misunderstood as they are interrelated concepts. There are some similarities between these two terms, as they both involve the need for extra cash. However, while funding refers to the act of providing money or resources for a specific purpose, which is usually carried out by federal funds or private organizations, financing is the process of funding any type of business operation by borrowing money to pay for something.
In the funding process, the money or resources given to an organization are not to be returned, even though agreements between companies and funding organizations may include a few conditions. On the other hand, the financing process involves acquiring business debt from loan programs or financing institutions such as traditional banks, which need to be paid back.