What is Finance Structuring?
The framework of various types of financing employed by a firm to acquire and support resources necessary for its operations. Commonly, it comprises of stockholders’ (shareholders’) investments (equity capital), long-term loans (loan capital), short-term loans (such as overdraft), and short-term liabilities (such as trade credit) as reflected on the right-hand side of the firm’s balance sheet. Capital structure, in comparison, does not include short-term liabilities.
We at Everpro will walk with you and guide you in choosing the best mix. We’ll also connect with an appropriate lender and negotiate for you the best terms. Before you get started with loan applications you must have a solid understanding and justification for why you need a loan for your business. You cannot waltz into the bank and simply ask for more money because you feel you need it. Take a hard look at your business’ financial situation and be prepared to defend your reasoning on why you need a loan. A bank will be hesitant to throw good money after bad, so if your business is losing money hand over fist they probably won’t be willing to lend to you.
Business people use the term structure in quite a few different ways. The terms “governance,” “business,” and “legal,” are all associated with their own “structures” for instance. These refer to aspects of the company set up and operation.
Two other similar terms describe the nature of the company’s financial position: Financial structure and capital structure. Both structures concern the “Liabilities + Equities” side of the Balance sheet equation:
Assets = Liabilities + Equities.
- Financial structure refers to the balance between all of the company’s liabilities and its equities. It thus concerns the entire “Liabilities+Equities” side of the Balance sheet.
- Capital structure, by contrast, refers to the balance between equities and long-term liabilities. Short-term liabilities do not contribute to capital structure.
For comparing the firm’s debt to its equities, financial structure is, therefore, more sensitive than the capital structure to short-term liabilities. “Financial structure” reflects the status of working capital and cash flow, salaries payable, accounts payable, and taxes payable. The Capital structure does not.
Capital structure, on the other hand, refers to the makeup of the company’s underlying value. Here, capital structure focuses on the balance between funding from equities and financing from long-term debt. The presumption is that firms use funds from both sources to acquire income-producing assets. Capital structure is also known as capitalization.