Securities financing is another name for the provision of new funds to a company whereby the company either sells new debt instruments or equity or some combination of both. For governments, it is performed through the sale of short- and long-term bonds to raise additional income, usually through an auction.
Obtaining external funding through the offer of securities is an option for both governments and companies. Securities can be offered to a small number of investors, a given class of investors such as current shareholders of a firm or the general public. For companies, the source of external funding can be a venture capitalist, an individual investor, a corporate investor, an institutional investor, or the general public.
Different methods are used to carry out sales of equity or new debt in different countries and among various classes of securities. They can be offered for sale at a predetermined fixed price or they can be auctioned off to the highest bidder.
In some cases, securities financing is preferable to financing through loans. For some companies (and most governments), it is sometimes easier (and cheaper) to obtain funding through emission of securities, especially if large quantities of money are in question. If the method of financing is through the emission of long-term bonds, interest is paid in predetermined intervals, while the principal is paid in full when the bond matures. If the method of financing is the sale of equity through IPO, no new debt is created, but the ownership structure changes.