Business finance is a broad term that encompasses many things about the study, creation, management, and investment of funds and investments in a business. A business can be made up of many different things, including corporations, partnerships, sole proprietorships, limited liability companies, partnerships, limited liability partnerships, and more. As the various pieces of a business interact and interlock, finance develops and provides the framework upon which those different pieces can sit. It can also be called the language of business.
Obtaining finance to start or expand a business involves finding loan providers who are willing to finance the business’s needs. Typically, most small business finance is obtained through a personal loan from the business owner himself. However, there are some banks that offer unsecured lines of credit for a variety of purposes such as equipment financing, debt consolidation, buying land, and starting a business. There are many factors to consider when obtaining finance for a business, including reputation, assets, liabilities, funding, history, and much more. These factors will all help determine the success of the business, as well as the amount of funding required.
In order to effectively manage business finances, it is important to have sound financial planning. This means that you should be able to develop a budget that will allow you to obtain the financial resources you need, as well as meet your obligations and avoid debts. To achieve sound financial planning, you will need to work with certified public accountants, business lenders, and business finance experts. Here are a few ways to obtain the finance you need to grow your business:
There are two main types of business finance that you will encounter. Debt financing is a way to pay off high-interest debt, such as credit cards and personal loans. Equity financing is the other main type of business finance, which is used to purchase commercial real estate, equipment, supplies, and more for your company. The two main types of business finance are very different and require two main different strategies to achieve the best results.
When it comes to obtaining finance for debt financing, you will want to use debt financing to pay off your high-interest credit cards and personal loans. You can obtain a line of credit that will allow you to make small payments on credit cards and other unsecured credit lines. This will give you time to pay off your balance while you continue to make your payments on time to maintain the line of credit. The downside to this strategy is that it will result in a large interest rate.
When it comes to obtaining finance for equity finance, you will need to work with business owners who have substantial capital. Typically, this requires them to partner with existing investors or venture capitalists. Partners will provide investors with equity capital, while venture capitalists will provide funding for your business. The venture capitalists typically provide more funding, but it is more difficult to obtain, as they must approve your business before they provide any equity in your business. The upside to obtaining equity finance through venture capitalists is that they receive a portion of your business at a fixed price and you do not have to provide security in your business.
The final type of business finance is working capital financing, also known as merchant cash advances. Working capital financing requires a company to have some level of existing credit. The working capital requirement is determined by the credit quality of the business as well as the amount of working capital, the company has obtained in the past. Working capital financing offers a borrower a predetermined repayment schedule; therefore, it is based on future revenue projections. In order to qualify for this type of financing, most borrowers will need to have an income statement that includes a good number of accounts receivable and accounts payable.
Regardless of the type of business finance you obtain, you should be prepared to meet both the long-term and short-term requirements of the financing. For the long-term, you must ensure that your cash flow increases enough to justify the cost of your loan; however, you may find that in order to pay back your loan on a timely basis, you will need to obtain additional credit or refinance your debt. On the flip side, if you are unable to increase your cash flow, the cost of your loans will increase and your ability to service those loans will become challenging. As a result, it is important that you understand exactly what type of financing you need in order to keep your business viable and operating at all times. To learn more about business finance, including common pitfalls to avoid, register for a free Business Insider subscription.