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Simple English definitions for legal terms
outside financing
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A quick definition of outside financing:
Outside financing refers to the process of raising funds by selling stocks (equity financing) or bonds (debt financing) to individuals or institutions outside of the company. This is different from internal financing, which uses funds generated through the company's operations. Other types of financing include asset-based financing, construction financing, and project financing. Outside financing is often used to obtain long-term loans to repay interim loans, such as a mortgage loan used to repay a construction loan.
A more thorough explanation:
Definition: Outside financing refers to the process of raising funds from external sources such as selling stocks or bonds. It is a way for businesses to obtain the necessary capital to operate or expand their operations.
- Equity financing: A company sells shares of its ownership to investors in exchange for capital.
- Debt financing: A company borrows money from a financial institution and agrees to pay it back with interest.
- Floor-plan financing: A car dealership obtains a loan from a manufacturer to purchase inventory, and pays it off as the cars are sold.
These examples illustrate how businesses can obtain outside financing to fund their operations. Equity financing involves selling ownership in the company, while debt financing involves borrowing money that must be paid back with interest. Floor-plan financing is a type of loan that is secured by merchandise and paid off as the goods are sold.