- Deriving from the word Finance, the definition of the word Financing is therefore the Act of finding solutions to carry out.
- By extension, the most common solution being money, it represents the Act of Provision of a Capital.
- Funding is mostly gathered with Investors by a Financial or a Trader in securities on behalf of a company called Issuer because it issues securities, sold to Investors through Brokers and Traders.
The Financing Principle
The principle of financing is to exchange a capital against information and an expectation of gain more or less certain.
Here are the reasons:
- To invest, the investor needs to know that the opportunity exists.
- It must be able to evaluate the gain / risk ratio.
- Familiarity creates trust, the illusion of information and the illusion of control.
Forms of Financing
There are two main forms of financing:
- The Credit, also called Debt.
- The Contribution (of Own Funds) also called Capital or Equity.
Criteria for Admission to Financing
In order for a company to be admitted as an Issuer by a Financial Community, it must meet the following criteria:
- Operate in a buoyant market.
- Be transparent.
- Do not be a One Man Show.
- To have a Competent Management, in Team.
- Have a unique character.
- Have a Competitive Advantage.
- Being international or at least present in the country of quotation, usually the United States.
Who wants a Capital must provide to any Prospect without it requiring it. Any material information of such a nature as to enable it to form an exact and complete opinion or to be able to affect its judgment as an Investor.
PROVIDING FALSE INFORMATION, OMITTING REAL INFORMATION, FAVORABLE OR NOT delays the process and exposes the infringer to civil liabilities and criminal sanctions.
The information is provided in the form of a Prospectus describing the Issue, more or less complete, which may have several designations:
The Prospectus or Disclosure Document are generic terms.
The Summary, Abstract or Executive Summary is a summary which should be limited to determining the interest of the Prospect for Investment.
The PPM, Private Placement Memorandum or Private Offering Memorandum are terms designating a Prospectus describing a Private Issue.
The Preliminary Prospectus or Red Herring is a term designating a Provisional Prospectus (without Price or Issue Date) describing a Public Issue.
The Public Offering Prospectus is a term designating a Prospectus describing a Public Offering.