Investment financing

Feb 1, 2019 Finance

Investment financing

There are many sources of financing for investments. What model of financial support a company will use depends to a large extent on the nature of the planned project. It should be noted that in the literature on this subject there are clear divisions into basic or dominant sources of investment financing and complementary sources. Depending on the type of source, different models of financial support for an enterprise are used.
Investment financing – dominant and complementary source
We’re talking about a so-called strategic investor. It covers most of the investment outlays. Its withdrawal or loss of the possibility of financing the project may completely stop the activities. Therefore, the selection of an appropriate model for this source of financing is the most important. The model of financing the dominant contribution to the investment is to have the risk of discontinuity of fixation or its complete discontinuance eliminated. The sources used here are mainly the following:
bank loans
profits from the issue of shares and bonds
In the case of complementary sources of financing, i.e. those that may be substituted by other sources and may therefore be more risky, the main use is made of them:
loans
lease
equity
The ideal model of financial support for investments is a combination of these two sources of capital.
Investment loans
One of the most frequently used financial instruments for investment purposes. Banks are very willing to grant this type of loans, therefore their offer is very extensive and adapted to the realities prevailing on the market. Thanks to the funds obtained on this account, companies are able to finance all projects related to their operations. They can count on a flexible repayment period adjusted to the size of the company and the scale of the project. Additionally, banks also offer a company account and a dedicated financial guardian.
Issues of shares and bonds
At the beginning it should be noted that this source of capital for investment is available only to companies having the status of joint-stock companies. Although the costs of conducting an issue of shares or bonds are considerable – which further narrows the group of companies that can take advantage of this option – such a manoeuvre gives a lot of opportunities to obtain funds for financing investments that will be lined up by shareholders. There is also a significant participation of the group of investors.
EU funds
The range of investments which may receive support from European Union funds is considerable. Often companies will receive aid at the level of 50% of the total investment and even more. The forms of co-financing from the EU funds may take the form of a subsidy or a preferential loan. Particular emphasis is placed on innovation and ecological solutions.