Financing needs

The financing requirement describes the result of the financing requirement calculation in the context of borrowing or the macroeconomic financing requirement of the company within an economy.

Macroeconomic financing needs of companies

In a closed economy , the amount of financing required by companies (as a whole) results from the amount of savings (in the sense of foregoing expenditure) by private households. The financing requirement increases of course for the complementary part of the company if another part of the company does not immediately reinvest its income in full. The size of the investment requirement (I) of the companies (u), depending on the saving on the expenditure within the corporate sector and the saving (S) of the private households (h), results as follows:

Compensation options for the company's financing needs

${\ displaystyle I ^ {u} = S ^ {u} + S ^ {h}}$

According to the previous equation, the need for the level of investment by companies results from the sum of savings by private households (consumers) + savings by the complementary group of companies. However, this only applies if the state budget balance is balanced and the current account balance is neutral .

If the state spends more than it earns, the state's expenditure surplus (deficit) reduces the financing needs of companies (with the amount of household saving remaining unchanged). Conversely, if the state creates revenue surpluses, i.e. receives more (from the taxes of domestic sectors) than it spends, it is precisely this revenue surplus (savings) of the state that increases the financial needs of companies on balance:

${\ displaystyle I ^ {u} = S ^ {h} + S ^ {S}}$

In an open economy, a (own) current account deficit increases the financing needs of domestic companies by the same amount, a net export (NX) reduces the financing needs of companies by the same amount (other things being equal), because the following applies:

${\ displaystyle I ^ {u} = S ^ {h} + S ^ {S} -NX}$

If a state reduces its deficit (surplus expenditure), if the current account is balanced, either the corporate sector must increase its surplus expenditure (debt) or the household sector must reduce its efforts to save money. If the companies do not increase their investments by the amount of the (usual) decreased government expenditure, but instead even reduce their investments, the income in the economy does not only decrease by the amount of the reduced expenditure of the government expenditure and business investments , since the macroeconomic income begins to decrease and tends to be reluctant to buy and the formation of monetary reserves is initiated.

Financing requirements for borrowing

The financial requirement calculation answers the question of which external and own funds must be available for which period within the framework of an investment project. A financing requirement calculation is carried out by the bank as part of a loan application .

The total financing requirement is first and foremost the sum of all expenses incurred as part of an investment project.

In the case of construction financing , these are, for example: purchase price, construction or renovation costs, real estate transfer tax and notary fees. It is important to consider construction period interest and a buffer for the unforeseen.

If one subtracts the existing equity capital as well as the planned own contribution from the total financing requirement , this results in the external financing requirement. In the amount of this external financing requirement, loans must be taken out from banks or other lenders.

The existing equity is sometimes not available immediately, but only after the maturity of investments, the allocation of home loan and savings contracts or the receipt of the sales proceeds from previous properties. In these cases is bridge financing provided in connection with the financing requirement calculation.

The financing requirement calculation is an ex ante calculation. If it turns out in the course of the investment project that the costs are higher than planned, refinancing is necessary. This is typically associated with higher costs. Whether refinancing is possible depends on the creditworthiness of the borrower.

Individual evidence

^ Michael Frenkel, Klaus Dieter John: National Accounts. 7th edition. Munich 2011. ( online ) p. 23: "The financing requirements of companies ex post correspond exactly to the amount of savings made by private households."

↑ Wolfgang Stützel: Economic balance mechanics. (Reprint of the 2nd edition) Tübingen 2011. p. 80:
"The entrepreneurial profits always only lag behind the entrepreneurial expenditure for consumption and investment by exactly the amount by which the non-entrepreneurs create income surpluses."

^ Wilhelm Lautenbach: Interest, credit and production. (Ed. Wolfgang Stützel) Tübingen 1952. ( PDF ( Memento of the original from October 17, 2013 in the Internet Archive ) Info: The archive link has been inserted automatically and has not yet been checked. Please check the original and archive link according to the instructions and then remove this notice. ) P. 49: "The entrepreneur's need for credit arises here precisely from the fact that non-entrepreneurs save, regardless of whether it is private or whether it is the public sector that has surpluses." @1@ 2

↑ Erich Schneider: Money, Credit, National Income and Employment. Tübingen 1964. (8th edition) p. 129:
“If the intended saving from income Y is equal to S, then this income can remain if and only if the entrepreneurs voluntarily invest in an amount equal to the intended savings . "

↑ Hans J. Barth: Potential-oriented debt. The concept of the council of experts to assess the overall economic development. In: National Debt Controversy. Cologne 1981. p. 59:
“The state uses part of the production potential to fulfill the tasks assigned to it by society, either directly by buying goods and employing staff, or indirectly by using transfer and Subsidy payments enables private individuals to assert demand. The public budgets are economically neutral if the state does not deviate with its expenditure and with its income regulations from what the private sector is used to, i.e. if the state in itself does not cause any deviation from the normal utilization of the production potential . If the actual budget volume deviates from the cyclical-neutral budget, the difference represents the cyclical impulse. "

↑ Erich Schneider: Money, Credit, National Income and Employment. Tübingen 1964. (8th edition) p. 278 f:
“A decrease in private investment or (and) the private propensity to consume, if constant budget balancing is demanded, will always trigger a stronger contractionary effect than if this demand is not made, rather a budget deficit is allowed; and conversely, an expansionary process with a budget that is always balanced will lead to a greater increase in income than if a budget surplus is allowed. The reason for this expansion and contraction-enhancing effect of a budget that is always balanced is particularly easy to see if the connections are made clear in a course analysis. If net private investment decreases in a period, income in that period decreases by the amount of the decrease in investment. In the second period consumption and net earnings fall, and consequently government expenditures, so that there is a greater decrease in income than if government expenditures remained unchanged. In the third period, consumption, net income and government expenditures decrease again, etc. until the new equilibrium is reached. "

[1] Michael Frenkel, Klaus Dieter John: National Accounts. 7th edition. Munich 2011. ( online ) p. 23: "The financing requirements of companies ex post correspond exactly to the amount of savings made by private households."

[2] Wolfgang Stützel: Economic balance mechanics. (Reprint of the 2nd edition) Tübingen 2011. p. 80:
"The entrepreneurial profits always only lag behind the entrepreneurial expenditure for consumption and investment by exactly the amount by which the non-entrepreneurs create income surpluses."