Investment credit financing refers to the process of securing the financial resources needed for a business’s commercial activities. Financing is typically carried out through two main methods:

Equity financing (raising capital from shareholders)

Debt financing (borrowing funds)

Financing through money markets and capital markets

These methods enable businesses to secure the necessary funds to launch, sustain, or expand their operations, ensuring smooth progress toward their financial goals.

1. Financing Through Equity (Shareholders’ Equity)

Equity or ownership rights in companies are one of the primary sources of financing. In fact, at the time of establishing any business, the initial capital provided by the founders is the first source of financing for the company. The founders contribute a certain amount of capital to the company, and in return, they share in the company’s profits and losses in proportion to their ownership shares, gaining voting rights in the company’s decisions. Company owners can raise funds by transferring a portion of their ownership rights. This method has its own advantages and disadvantages when compared to borrowing (debt financing), which we will discuss further.

2. Financing Through Debt (Borrowing)

Debt is one of the two primary sources of financing for businesses. Company managers can increase the financial resources available to the company for business operations by borrowing and obtaining loans. Debt financing has its own advantages and disadvantages compared to equity financing, which we will explore in more detail.

3. Financing Through Money and Capital Markets

Regardless of whether financing is based on debt or equity, it can be achieved through financial markets. The main purpose of both the money market and the capital market is to assist in financing businesses. These markets provide opportunities for companies to secure the necessary funds to operate and grow.

3-1. Financing Through the Money Market

The money market is a market for trading money and other near-money assets (such as treasury bills and certificates of deposit) with maturities of less than one year. It can also be referred to as a market for short-term financial instruments, characterized by low default risk, high liquidity, and a high face value. The focus of this market is on using instruments that allow individuals and businesses to quickly adjust their liquidity to desired levels. Instruments in this market include treasury bills, bank certificates of deposit, debt securities, and more. Businesses can raise liquidity for their commercial objectives by issuing bonds in this market, which is essentially a form of increasing debt.

3-2. Capital Market

The capital market is a market where long-term financial instruments with maturities of over one year and assets without maturity are traded. This segment of the financial market plays a crucial role in gathering savings and meeting the investment needs of production units. The capital market is much broader than the money market and offers a greater variety of instruments. Financial tools in this market include common and preferred stocks, participation bonds, sukuk, and more. It is important to note that the scope of activity for investment companies is centered around financing businesses through the capital market.

In the chart below, financing methods are presented in detail: