Finance is defined as the technique of managing your money. In this technique, the funds and liabilities will be allocated with the passage of time. Whenever you make an investment in terms of finance, then this implies there will be some level of uncertainty and risk involved. This is the reason you need to understand the two types of finance so that you can make the right decision at the right time.

For understanding the types of finance, you must have proper education on this subject. When you study finance in your graduation or post-graduation, you will get to know that finance is something that you can find everywhere, such as in your home, workplace, or educational institutions. The two types of finance are described below:

Debt financing
Debt financing is money that you borrow from someone to maintain or run your business. The lending of money doesn’t refer to transferring the ownership of the business. It just means that the money is given to the person for some period of time and that it will be taken back with some interest amount. The percentage of interest varies with the lender or financial institution providing the debt. Most of the time the rate of interest will depend on the duration of the loan, the amount of the loan, inflation rate, and the purpose of the loan. The three types of debt financing have been explained below.

Short-term types of finances: The loans that are given for only a short duration of time, such as one day to 180 days, are known as short-term types of finances. This type of money lending usually occurs when you have a shortage of funds or there is any temporary requirement of funds. This type of financing is generally opted for to fulfill an everyday requirement. There are different types of short-term finances such as credit cards, bank overdraft, advances from customers, and small business loans, etc.

Medium-term types of finances: When you require money for about 180 days to a year, then this type of finance is known as medium-term types of finances. This type of financing mostly depends on the utilization of funds in a business. Some of the types of medium-term types of finances are hire purchase finance, lease finance, issue of the debenture, and many more.

Long-term types of finances: There are various loans that are required for more than one year like a car loan, home loan, etc. Since these loans are required for a longer duration, they are known as long-term types of finances. Some of the types of these finances are the issue of equity shares, bonds, issue of preference shares, etc.

Equity financing
The second type of finance is known as equity financing. This type of financing is made for the repayment of the principal amount. In this type of financing, the capital is offered by issuing the shares of the company. For example, equity financing is commonly generated by offering the equity stocks of the organization.

These are two types of finances that can help you in obtaining funds.