THE’investment It is a way to try to make your money fruits, thus hoping that this can bring an economic return, while the financing It is a way to get resources for your company or for themselves. To better explain this difference, we go to see their main features:
- Investment: And the use of their own money to purchase financial assets or instruments (such as shares, properties, bonds, etc.) with the aim of obtaining a future economic return. The investor takes on a risk, but he hopes that the value of the purchased assets grows over time, generating more or less high earnings depending on the success of the investment, as in the case of the earnings obtained from shares or by the sale of properties bought at a low price and resold to a higher one.
- Financing: is one request for money Borrowed from banks, credit institutions, or private individuals, who will probably be returned with interest. The aim is to obtain resources To deal with needs Immediate or for specific projects and can have a short or long duration, they define themselves, in fact, to “short or long term”.
In reality, the two things could coexist, we take for example the purchase by financing a house with the hope that restructuring it, improving the energy class, and investing both money and time, it can then be researched at a higher price of what it was purchased, thus generating a profit from this investment, in this case called “real estate investment”.
What is meant by the term investment and what it means
When we invest money, it means that we are allocating it to something that we hope will earn us more. This money can be spent to buy physical goods such as valuable objects, immobiles, or financial instruments such as actions and bonds, or to finance a company, buy equipment or make projects to grow it.
- THE’investment in physical goods It concerns the purchase of objects such as houses, land, machinery or works of art, with the hope that increase in value over time.
- THE’investment in financial instruments it concerns the purchase of actions, bonds or precious metals.
In both cases the idea is that the value of what has been purchased grows over time and that therefore you earn more than what has been invested.
- THE’investment in a company It consists in buying actions, or new machinery that will make it produce more or helping to finance its projects, with the aim of obtaining a profit as soon as the company grows.
In general, the investment is a way of allocating the money that brings with it a degree of risk linked to the unknown not to know when and how much it will gain from this investment.
What is meant by financing and how many types are there
The financing It is the process through which a person or company has a application to obtain the money or credit necessary to meet their needs, buy a product or service or to carry out a project. It means taking loan Money from an external source, like a bank or investor, to cover expenses or make investments. There are different types of financing, which are distinguished by the source of money and for how it is returned: the loan for debt and that public or subsidized. The subsidies They are economic aid that must not be returned, are created to support projects of common interest, such as research, education or social initiatives; the contributions, which are among public funding, are funds allocated by public or private bodies to people or companies for specific projects. They must not be returned, but are often linked to precise conditions for how they should be used.
The loan that takes place through debt It is the most common one, in which a loan is asked (for example to a bank) and returns it with the interests in a pre-established time, more or less short depending on whether it is aimed at immediate needs, or at the biggest expenses: in the case of purchase of a house, a mortgage lights up which can be returned in 10-20 or even 30 years.
The financing is a process Because it is a series of passages that an individual or company must follow to obtain money from an external source, such as a bank or public body. To request and obtain the financing, various steps are needed, we take for example the purchase of a house by mortgage:
- Estimate Which amount It must be asked that it is financed to buy it (it could be 100% of the sum, or only a part);
- Understand if a bank can actually finance that sum;
- Make the request mortgage and wait for the appropriate evaluation to understand if the applicant is able to pay that debt based on income and other cases also linked to the purchase;
- In the end receive financing and start repay him through agreed installments.
The sum that it will be necessary to return will be structured in a pre -established plan, the so -called amortization plan, Where all the installments that must be paid will be defined, each installment will be made up of the money that has actually been paid and another part by the extra interests that will be paid in the face of the fact that that bank took on the risk of the loan.
Other types of financing
The procurement public are contracts in which public bodies, such as the government, finance companies to do work or provide services. The companies participate in the tenders and those who win the contract obtains the loan to carry out the work. Instead, as regards financial instruments, there are various ways of obtaining a loan: thanks to loansor al proper capitalthat is, by financing a company in exchange for a part of the property, therefore buying shares, and thus becoming the investor as a financier of the company itself.
Basically we can say that therefore the main difference between financing And investment it concerns the purpose and way of which the money available is used.
