• Companies need funding to operate and grow.money, money, money image by easaab from Fotolia.com
  
  Organizations need funding for their operations, investments, major projects and expansion into new markets. Cash generated from operating profits might not be sufficient to cover funding needs because entities might invest in many projects at once. Accordingly, they raise additional funds from external sources such as equity investors, creditors or debt holders, hybrid equity-debt investors and governments.
  
  

Debt

• Companies raise money by issuing bonds or other forms of debt in financial--or capital--markets. They may also borrow directly from private institutional investors such as banks, hedge funds, venture capital firms and brokerage companies. Investors who lend to entities are called bondholders. They are paid interest on a quarterly, semi-annual or annual basis. The amount lent is reimbursed at maturity--the end of the holding period.
  
  

Equity

• Organizations get funding also by issuing stocks--or shares of ownership--in the financial markets. They may issue privately those shares to institutional investors. Investors who buy stocks--also called shareholders or stockholders--do not receive periodic interest payments, however they receive dividends on a periodic basis, and make profits when the stock increases in value. Shareholders hold voting and management rights with respect to companies in which they invest. For example, they are invited to the annual shareholders meeting and may vote on management's change and compensation, merger with another firm or dividend payment.
  
  

Debt-Equity

• Companies may raise funds by issuing financial instruments with debt and equity features. Such instruments are called hybrid instruments or quasi-debt. There are two types of quasi-debt: convertible bonds and preferred shares; they pay fixed dividends but do not confer voting or management right on the owner. Holders of convertible bonds may convert such bonds into equity in accordance to the bond agreement. For instance, a holder of Company X's bonds might convert such bonds into shares if the stock has increased substantially in value after a period of time.
  
  

Government Subsidies

• Companies may also get additional funding--or save money--from government programs that subsidize a particular sector or industry or offer fiscal benefits. Governments might encourage such programs to develop specific sectors of the economy. For example, they might give tax breaks to organizations investing in environmental programs or subsidize employers who hire local job seekers.