DEFINITION of 'Financing Entity'

The party in a financing arrangement that provides money, property, or another asset to an intermediate entity or financed entity. A financing entity receives a fee for providing financing, and is linked to the financed entity through a chain of financing transactions across all intermediaries.

BREAKING DOWN 'Financing Entity'

Financing entities and financed entities represent the two major parties in a financing arrangement. A financing entity provides money that is used by the financed entity. Other entities may serve as intermediaries. The financing entity can borrow the money from a bank or other financial institution using assets as collateral. For example, a business may “sell” its inventory to a financing entity, which uses this new collateral to secure a loan from a bank. The financing entity then remits the bank funds to the business, and the business repurchases the inventory and provides the financing entity with a fee. While the legal title of the business’ inventory was transferred to the financing entity, for intents and purposes the inventory is still owned by the business.

In insurance, financing entities include underwriters, lenders, and purchasers that have a direct ownership in a life insurance contract. A financing entity's primary role in a life insurance transaction is to provide funds. A financing entity is involved in the business of viatical settlement, which includes activities related to the offering, purchasing, investing, financing, selling, and underwriting of life insurance policies.

Regulators seek to ensure that financial entities are in good financial condition, and consider actions that misrepresent or conceal the financial health of a financial entity as fraudulent. The Internal Revenue Service (IRS) reviews such arrangements in order to determine if the purpose of the intermediaries was to disguise the transactions as being a financing arrangement. If the IRS determines that the purpose of the financing arrangement is to lower withholding tax, it may decide on whether the intermediate entities are acting as conduits.

RELATED TERMS
  1. Accounting Entity

    A clearly defined economics unit that is accounted for separately. ...
  2. Bond Bank

    A state-level entity that provides that state's smaller public ...
  3. Entity Trading Account

    A trading account that belongs to a legal entity such as a corporation ...
  4. Underlying Debt

    In municipal bonds, underlying debt relates to an implicit understanding ...
  5. Actual Owner

    A person or entity that receives the benefit of ownership. Being ...
  6. Reference Entity

    The party upon which the two counterparties in a credit derivative ...
Related Articles
  1. Small Business

    What is Equity Financing?

    Companies that are short on cash may need financing to pay for short-term needs or long-term capital expenditures.
  2. Investing

    What is Debt Financing?

    When a company needs to pay for something, it can pay with cash, or it may finance the purchase. Financing means that it gets the money from other businesses or sources, in return for obligations. ...
  3. Small Business

    Is Equity Financing the Right Choice for Your Business?

    Discover the benefits and drawbacks of equity financing for a small business, and learn when equity financing should be used instead of debt financing.
  4. Investing

    What Does Finance Cover?

    Finance is the study of banking, leverage, credit, capital markets, money and investments, along with how they are used by individuals and companies.
  5. Investing

    The Difference Between Finance And Economics

    Finance and economics are often taught as separate subjects, but they are interrelated disciplines that influence one another in many ways.
  6. Investing

    Understanding Structured Finance

    Structured finance refers to a complex financial transaction involving large financial institutions and companies with unique needs.
  7. Small Business

    Small Business Financing: Debt Or Equity?

    There are two sources of financing for small businesses: debt and equity financing. This article explains both.
  8. Investing

    The Difference Between Finance And Economics

    Learn the differences between these closely related disciplines and how they inform and influence each other.
  9. Small Business

    The Basics Of Financing A Business

    From debt financing to equity financing, there are numerous ways to fund a business startup. But which is the best?
RELATED FAQS
  1. What is finance?

    Finance is a broad term that describes two related activities: the study of how money is managed and the actual process of ... Read Answer >>
  2. What steps are necessary for a business to secure equity financing?

    Understand the steps necessary for a small business to secure equity financing for working capital, financing expansion or ... Read Answer >>
  3. How can a company or entity challenge the absolute advantage of another company?

    Understand what absolute advantage is, and learn how a company or entity can challenge the absolute advantage of another ... Read Answer >>
  4. Other than accounting, what does a corporate finance job involve?

    Understand the various levels of positions and titles of a corporate finance job. Learn what a corporate finance job involves ... Read Answer >>
  5. When should a business avoid debt financing?

    Read about the optimal use of debt in a business capital structure and how to know when a business should avoid further debt ... Read Answer >>
Hot Definitions
  1. Preferred Stock

    A class of ownership in a corporation that has a higher claim on its assets and earnings than common stock. Preferred shares ...
  2. Net Profit Margin

    Net Margin is the ratio of net profits to revenues for a company or business segment - typically expressed as a percentage ...
  3. Gross Margin

    A company's total sales revenue minus its cost of goods sold, divided by the total sales revenue, expressed as a percentage. ...
  4. Current Ratio

    The current ratio is a liquidity ratio measuring a company's ability to pay short-term and long-term obligations, also known ...
  5. SEC Form 13F

    A filing with the Securities and Exchange Commission (SEC), also known as the Information Required of Institutional Investment ...
  6. Quantitative Easing

    An unconventional monetary policy in which a central bank purchases private sector financial assets in order to lower interest ...
Trading Center