Brief Guide to Business Financing
What is Business Financing?
Business financing refers to the process of a business obtaining loans, money or capital to finance their operation. Business financing is undertaken by the majority of businesses, regardless of size or the product they intend to produce. The initiative is common, because in a small business environment, the typical entrepreneur does not possess enough personal money to start a business.
For bigger companies, business financing is also common, because very few companies can afford to purchase equipment, office space and other resources essential to run a business without taking a loan or financing their purchases. Because business financing is so common, there are a number of ways to finance a business operation, including loans from banks, business to business financing, government grants or loans, private financing (borrowing money from friends and family), etc.
What is Business to Business Financing?
Business to business financing is a process entities use to raise funds without going through a ban, brokerage house, or lender. Business to business banking allows a company to secure external finances from other businesses, while creating strategic partnerships that will help secure a competitive advantage. Business to business finance is undertaken in a variety of ways including: issuing bonds, selling stock or securing direct investments.
Larger organizations that are publicly traded have the ability to sell bonds to other companies. These conservative investments are a fundamental form of debt financing; the bonds, which yield fixed payments over a course of time, are purchased by other companies or institutional investors, thus injecting the business with liquid cash. In addition to issuing bonds, publicly-held companies can sell stock to public investors to raise funds. The majority of shareholders will utilize dividend reinvestment plans, which take the periodic dividend payment and use those funds to automatically re-invest money into the company. In this form of business financing, the buyer can maximize his or her investment by not touching the funds generated, while the business will not have to worry about paying out the dividend, allowing them a stream of financing to increase their overall economic value.
Business Financing for Minority Business Owners:
There are a number of types of minority business financing procedures that an entrepreneur or private business owner can undertake to finance their venture. The primary type of minority business financing that is available are introduced by the federal or state governments, not for profit organizations and financial institutions. In order to obtain this form of business financing, the owner must generate a proposal stating why they need the money and how their company will benefit the community. The majority of grants are offered because small businesses offer numerous positive externalities to the communities in which they are located. Additionally, entrepreneurialism is encouraged in the United States; the ability to finance a suitable and beneficial business effort is typically possible in the United States of America.
NEXT: Equipment Financing
