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Funding is the act of providing resources to finance a need, program, or project. While this is usually in the form of
money Image:National-Debt-Gillray.jpeg, In a 1786 James Gillray caricature, the plentiful money bags handed to King George III are contrasted with the beggar whose legs and arms were amputated, in the left corner, 174x174px Money is any item or verif ...
, it can also take the form of effort or time from an organization or company. Generally, this word is used when a firm uses its internal reserves to satisfy its necessity for cash, while the term financing is used when the firm acquires capital from external sources. Sources of funding include credit,
venture capital Venture capital (VC) is a form of private equity Private equity (PE) typically refers to investment funds, generally organized as limited partnerships, that buy and restructure companies that are not publicly traded. Private equity is a ty ...
,
donation A donation is a gift for charity, humanitarian aid Humanitarian aid is material and logistic assistance to people who need help. It is usually short-term help until the long-term help by the government and other institutions replaces it ...
s, grants,
savings Wealth is the abundance of valuable financial assets or physical possessions which can be converted into a form that can be used for transactions. This includes the core meaning as held in the originating old English word ''weal'', which i ...

savings
,
subsidies A subsidy or government incentive is a form of financial aid or support extended to an economic sector (business, or individual) generally with the aim of promoting economic and social policy. Although commonly extended from the government, the term ...
, and
tax A tax is a compulsory financial charge or some other type of levy imposed on a taxpayer (an individual or legal entity In law, a legal person is any person A person (plural people or persons) is a being that has certain capacities or attr ...
es. Fundings such as donations, subsidies, and grants that have no direct requirement for return of investment are described as "soft funding" or " crowdfunding". Funding that facilitates the exchange of equity ownership in a company for capital investment via an online funding portal per the Jumpstart Our Business Startups Act (alternately, the "JOBS Act of 2012") (U.S.) is known as equity crowdfunding. Funds can be
allocated
allocated
for either short-term or long-term purposes.


Economics

In economics funds are injected into the market as capital by lenders and taken as loans by borrowers. There are two ways in which the capital can end up at the borrower. The lender can lend the capital to a
financial intermediary A financial intermediary is an institution or individual that serves as a middleman among diverse parties in order to facilitate financial transactions. Common types include commercial banks, investment banks, stockbrokers, pooled investment funds, ...
against interest. These financial intermediaries then reinvest the money against a higher rate. The use of financial intermediaries to finance operations is called indirect finance. A lender can also go the
financial market A financial market is a market in which people trade financial securities and derivatives at low transaction costs In economics Economics () is the social science that studies how people interact with value; in particular, the Produc ...
s to directly lend to a borrower. This method is called direct finance.


Purpose of Funding


Research funding

It is used for
research Research is "creativity, creative and systematic work undertaken to increase the stock of knowledge". It involves the collection, organization, and analysis of information to increase understanding of a topic or issue. A research project ma ...
, in fields of technology or social science.
Research funding Research funding is a term generally covering any funding for scientific research Research is "creativity, creative and systematic work undertaken to increase the stock of knowledge". It involves the collection, organization, and analysis ...
can split into commercial and non-commercial. Research and development departments of a corporation normally provide commercial research funding. Whereas, non-commercial research funding is obtained from charities, research councils, or government agencies. Organisations that require such funding normally have to go through competitive selections. Only those that have the most potential would be chosen. Funding is vital in ensuring the sustainability of certain projects.


Launch a business

Entrepreneurs with a business concept would want to accumulate all the necessary resources including capital to venture into a market. Funding is part of the process, as some businesses would require large start-up sums that individuals would not have. These start-up funds are essential to kick-start a business idea, without it, entrepreneurs would not have the ability to carry out their concepts in the business world.


Uses on investment

Fund management companies gather pools of money from many investors and use them to purchases securities. These funds are managed by professional investment managers, which may generate higher returns with reduced risks by asset Diversification (finance), diversification. The size of these funds could be a little as a few millions or as much as multibillions. The purpose of these funding activities is mainly aiming to pursue individual or organization profits.


Methods of Funding


Government Grants

Government could allocate funds itself or through government agencies to projects that benefit the public through selection process to students or researchers and even organisations. At least two external peer-reviewers and internal research award committee review each application. The research awards committee would meet some time to discuss shortlisted applications. A further shortlist and ranking is made. Projects are funded and applicants are informed. Econometric evidence show public grants for firms can create additionality in jobs, sales, value added, innovation and capital. For example, this was shown to be the case for large R&D grants, as well as smaller public grants for the tourism firms or small and medium sized firms in general.


Crowdfunding

Crowdfunding exists in mainly two types, reward-based crowdfunding and equity-based crowdfunding. In the former, small firms could pre-sell a product or service to start a business whereas in the latter, backers buys certain amount of shares of a firm in exchange of money. As for reward-based crowdfunding, project creators would set a funding target and deadline. Anyone who is interested can pledge on the projects. Projects must reach its targeted amount in order for it to be carried out. Once the projects ended with enough funds, projects creators would have to make sure that they fulfil their promises by the intended timeline and delivery their products or services.


Raise from investors

To raise Capital (economics), capital, you require funds from investors who are interested in the investments. You have to present those investors with high-return projects. By displaying high-level potentials of the projects, investors would be more attracted to put their money into those projects. After certain amount of time, usually in a year’s time, rewards of the investment will be shared with investors. This makes investors happy and they may continue to invest further. If returns do not meet the intended level, this could reduce the willingness of investors to invest their money into the funds. Hence, the amounts of financial incentives are highly weighted determinants to ensure the funding remains at a desirable level.


Self-Organized Funding Allocation

Self-organized funding allocation (SOFA) is a method of distributing Funding of science, funding for scientific
research Research is "creativity, creative and systematic work undertaken to increase the stock of knowledge". It involves the collection, organization, and analysis of information to increase understanding of a topic or issue. A research project ma ...
. In this system, each researcher is allocated an equal amount of funding, and is required to anonymously allocate a fraction of their funds to the research of others. Proponents of SOFA argue that it would result in similar distribution of funding as the present grant system, but with less overhead. In 2016, a test pilot of SOFA began in the Netherlands.


Withdrawal of funding

Withdrawal of funding, or defunding, occurs when funding previously given to an organisation ceases, especially in relation to Governmental funding.


See also

* Foundation (non-profit) * Investment ** Investment fund * Crowdfunding * Peer-to-peer lending *
Research funding Research funding is a term generally covering any funding for scientific research Research is "creativity, creative and systematic work undertaken to increase the stock of knowledge". It involves the collection, organization, and analysis ...
* Seed money * Micro finance * Mutual fund * Trust Fund * Equity fund


References

{{Authority control Business terms Fundraising