For those of you who are experienced in the business world, especially in the financial world, you must be familiar with the word funding. This term is often referred to in pairs with lending. However , funding and lending are clearly two different things. Funding itself has the meaning of collecting funds, while lending has the meaning of channeling existing funds. For more details about funding , you can listen to the explanation below.
Understanding Funding
The term funding is taken from the English word, namely fund which means funds, capital, or savings. So then, the meaning of funding can be said as an activity of collecting funds, capital, or deposits by financial institutions such as banks, cooperatives, and so on. In a broader sense, funding is an activity to collect funds from the public as customers of financial products.
The financial products in question include deposits, savings, demand deposits, bonds, mutual funds, insurance, and others. From the results of the collection of funds, customers will get a return and guarantee the security of their deposits. Of course, security guarantees for deposit funds can only be obtained by customers through financial institutions that are legal and supervised by the Financial Services Authority (OJK).
So, it can be concluded that funding is financial products or activities whose purpose is to collect customer funds.
How Funding and Lending Work
Funds that have been collected from funding activities, namely customer money deposited in banks and other financial institutions, will be channeled through debtors through the lending stage.
The distribution of these funds is carried out by providing loans or credit to people who need them, of course after all the specified conditions are met. There are various forms of credit or loans offered, depending on the ability of the financial institution that distributes them to prospective borrowers.
As fund managers, banks and other financial institutions will be tasked with considering and assessing the feasibility of prospective borrowers before granting credit. Which later, the loan recipients will be charged fees and interest, the amount of which depends on the respective organizers involved or the fund managers.
The amount of other fees and interest rates that must be paid by the customer will be calculated based on the amount of loan funds and the tenor taken. The lower the level of fees and interest rates offered, the greater the interest of customers as potential borrowers.
Funding Purpose
In general, funding has several purposes in its application. Among others:
- Research / Research Funding
This funding allocation will usually be given on a per project, departmental, or institutional basis that comes from the scope of the existing research or project. Research funding can be divided into commercial funding and non-commercial funding, where commercial funding is provided by the department and development of a company. Meanwhile , non-commercial research funding is obtained from charities, research councils, or government agencies.
- Business / Business Launch
Funding is usually given to entrepreneurs or individuals who have business ideas but do not have the funds needed to realize these ideas. With the help of funding, a business project can be realized by the individual.
- Investment / Investment Funding
Funding management companies will collect money from many investors and use it to buy products in securities. These funds are managed by professional investment managers so they can generate higher returns with lower risk through asset diversification.
In addition to the points above, there are also funding methods that you must understand
Funding Method
In carrying out funding activities, you have to do several funding methods yourself.
- Government
In funding with the government method, this means that the government provides funding assistance either directly or through government agencies for projects that are beneficial to the community through a selection process. An example of funding with the government method is financial assistance for MSME entrepreneurs.
- Crowdfunding
If funding using the government method is provided directly by the government, crowdfunding takes advantage of access to wider networks such as social media and a special website for crowdfunding with the aim of uniting investors outside of traditional or internal connections such as family, friends and close relatives.
- Investor
Attract investors to inject funding into a project by offering and explaining the benefits that will be obtained if the project is successfully implemented.
After you know the meaning, how it works, the purpose, to the funding method, the last thing you have to learn is the stages of receiving funding. Here's the explanation.
Funding Acceptance Stages
The process of receiving/implementing funding generally consists of several stages. Each stage, funding has different characteristics and amount of funding. That is:
- Seed Funding
The first stage that startups can get is seed funding. Generally, the amount of funding provided at this stage reaches Rp 500 million to Rp 2.5 billion. The purpose of providing seed funding is to find out about the potential of products being made by startups as well as to identify the targeted market. Usually, startups use this seed funding to start recruiting staff and renting or buying offices.
- Series A
If a startup 's product has reached the beta stage and is ready to be used by a number of target users, usually startups can get series A funding. The amount is around IDR 10 billion to IDR 33 billion. This series A funding is often used by startups to scale products as well as determine the right business model to be applied to their business.
- Series B
At this stage, startup companies usually already have a strong enough user base so they can already make a profit. Most startups will also usually release their last product when they get this series B funding. Generally, the amount of series B funding ranges from Rap 22 billion to Rp 80 billion and will usually be used to expand the user base, expand the market, and optimize the business model.
- Series C
Startups that successfully reach the series C funding stage usually already have a fairly large and mature business condition. Funding obtained in a company will be used to expand products to open branches nationally and internationally. Series C funding amounts typically range from $25 million to as high as $100 million.
- Initial Public Offering (IPO)
If you have successfully reached the Initial Public Offering (IPO) funding stage , then your startup company where you work is ready to go public. This means that startup shares are sold on the stock exchange.
Of course, it takes a process that is not instant for a startup to reach this stage. Ideally, a startup takes 5-10 years to finally be ready and brave to do an IPO.
That was the full explanation of funding. Funding is often associated with lending because it exists for one another. As already discussed, lending is an activity of distributing funds to borrowers by a financial institution.
Loan recipients can be businesses such as startups, MSMEs, and others or individuals such as for personal or daily needs.
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