Funding is what?

Sometimes an enterprise lacks its own resources for doing business, so it resorts to a funding procedure. The latter is a certain guarantee of successful activity and an opportunity to stay afloat in the modern competitive business environment.

Definition of concept

Funding is first and foremost the attraction of borrowed resources, which enterprises use to ensure uninterrupted provision of their activities in accordance with the main direction.

Thus, for the enterprise that conducts non-commercial activities, the main source of funding will be sponsors or the state. The organization may have its own funds for attracted funds, which in this case are closed kindergartens, private homes for the elderly or cultural circles and communities.

For the state, in turn, the tax liability of payers is a source of funding. On the received means it contains such non-profit organizations as hospitals and educational institutions. It is worth noting that the concept of funding for the country fully corresponds to the regime of a planned economy.

For commercial companies, funding is the attraction of funds from parent organizations. In the case of insurance, the main financial fund is the funds of policyholders.

Basic Methods

If you rank the funding process according to accrual methods, then it can be divided into the following categories:

• Prospective methods;
• Methods for accrual.

Thus, in a prospective aspect, the efficiency of a loan fund in rough formulation is a derivative of the amount of accrued funds for the last period. In other words, pensions are accrued according to the amount of wages for the last few years of the employee, and deposit rates in banks depend on the amount of funds raised over the reporting period under review (this, of course, is not the only criterion for determining this indicator).

If you take into account the methods for accrual, then funding is the amount of borrowed funds that has been credited throughout the entire commercial activity of the enterprise. In other words, according to the method under consideration, the insurance company's payments fund will depend on how many premiums were paid by policyholders for the whole period of the company's operation. In the case of state funding, the amount of social benefits will depend on the amount of taxes paid to the treasury.

How is the funding rate determined?

The funding rate is the total cost of borrowed resources, which is calculated by a complex formula, but let's try to simplify this concept and explain everything in an accessible language.

The net amount of borrowed funds is not the net cost of borrowed funds, so the funding rate is calculated depending on the weight of the indicators:

• Influential market indicators are taken into account;
• Taking into account the profitability of the enterprise;
• Weighted ratio of assets and liabilities, taking into account costs;
• Expert evaluation of the urgency of assets is involved.

At the same time, the funding rate does not have a clear period of relevance, and the estimated period for the cost of borrowed resources is chosen at the discretion of the enterprise: be it once a day, a week or a year.

After determining the funding rate, the received indicator is taken into account when determining the solvency of the enterprise, which carries out its core business through borrowing funds.

Determining the value

The cost of funding is the rate at which borrowed funds are invested in the company's capital, so do not confuse the concept of "funding rate" and "cost."

Of course, it would be more logical to decide that the rate is the percentage estimate of the funds raised, however, as described above, this assertion is incorrect, since the value is a direct transfer price that determines the percentage of the company that can afford to borrow.

This indicator also depends on a variety of factors and is calculated by a complex formula, but we can briefly say that when determining the indicator of the cost of funding, the available amount of funds raised, market demand, supply and stock indicators are taken into account.

Therefore, often the interest rates on loans and deposits in the bank depend on the mass of indicators and indicators, and not on how much the competitor offers, as many of us are used to think.

The concept of the funding ratio

The funding ratio is an indicator that is determined as a result of the calculation of the ratio between the assets and liabilities of the enterprise in the national currency. Thus, the company can calculate the volume of risks of its core business as of the date of the reporting period.

In the event that the assets exceed the liabilities in their quantitative terms and the coefficient is greater than one, it can be concluded that the enterprise's risks are currently low, and nothing threatens its functioning. In other words, the activity of the enterprise is stable and capable of yielding a constant income.

If the liabilities dominate the assets in their total ratio, the conclusion suggests that the risks of the main activity of the enterprise are large enough and the yield is under threat. This may result in low interest rates for raising borrowed capital in the bank or the inability of the insurance company to make payments.

Banking funding

Funding of banks is the attraction of borrowed capital for the further main activity.

In general, it can be said that absolutely any bank practices the funding procedure, otherwise its activities will be impossible. The bank, as a rule, has insufficient amount of equity to fully extend credit, especially when it comes to legal entities. Therefore, for normal operations, deposits are attracted.

Each of you probably noticed that the lending rates of the bank often depend on the deposit or vice versa. Therefore, if the rates on the loan grow, then the deposit percentage of profitability can not decrease - this is the first principle of funding.

A huge number of enterprises are able to manage their own funds without involving funding procedures, but not banks. Banking activities always include borrowing.

Funding of documents

The funding procedure does not always have an economic aspect, and in the organization of office work this term also has quite a significant influence and significance. In documentary practice, it is considered that funding is the so-called archiving of documents for the previous periods of the enterprise's activity.

The archiving procedure can be performed with some frequency - once a year, quarter or month (depending on the volume of existing information). Funding of documents, as a rule, is carried out by registers. It can be:

• Signatories;
• The names of addressees;
• content.

In general, there are no clear rules and regulations on the procedure for funding according to registers, so the clerk can choose the most convenient and optimal way of archiving.

conclusions

In conclusion, I want to note that funding is an integral process in the implementation of entrepreneurial activities of many enterprises, otherwise how would we use bank loans if there were no deposits? On what means would the insurance company make payments, if there were no insurance premiums? And social services could not pay benefits, without the tax system in the country.