Not long ago we shared an article from Entrepreneur.com about financing, and personal finance. However, I have found a much more in-depth article that covers every single thing you could ever wonder about personal and business finance and investing, and even includes helpful videos.
The article is long and definitive, so be ready to do some reading, but you could bookmark this article from Cleverism.com as the only one you need to refer to when it comes to all finance related questions.
Here is the link to the full article. Below is an excerpt:
In business circles, there are words or terms that are easily recognizable in the sense that, the moment they are spoken or raised in conversation, business people have instant recognition for them. Examples of such words are assets, liabilities, capital, equity, profits, losses, income, expenditures, loans, and net worth, to name a few.
There is another word that can never be separated from business, even for those who are only just starting out. That is financing.
In this in-depth guide 1) we will provide an introduction to financing and why it is important for businesses, 2) we define internal and external financing as well as as the advantages and disadvantages of each, 3) we discuss raising debt including pros and cons, debt investors and their investment criteria, and the process of raising debt, 4) we discuss raising equity including pros and cons, typical equity investors and their investment criteria, and the process of raising equity, 5) we discuss other ways to finance your business, and lastly 6) share some best-practices and tips related to financing.
Wow! We’ve got a lot to cover. So let’s get started.
AN INTRODUCTION TO FINANCING
“Financing” basically refers to the act of providing funds for business operations, activities or projects. It often involves asking another individual or a financial institution to lend you money, or invest money in your business or enterprise, with the promise or commitment that their money will be repaid, or that they will get a corresponding amount of their investment returned to them at a future date. Examples of financial institutions that can be approached for funding are banks, financing companies, credit unions and cooperatives.
Financing becomes an essential activity from the beginning. Entrepreneurs who have brilliant and promising business ideas will need to find sources of funds in order for them to bring their ideas to life. Sure, they may have their own money set aside to start the business, but more often than not, this money is not enough hence they will need assistance to finance the whole venture.
However, it’s not only new businesses that require financing. Even established companies may also seek funding from various sources, such as when they have plans for expansion, or they plan on launching a new product line. Basically, any business activity that requires infusion of money calls for financing. With this in mind, financing is an activity that businesses can never separate from.
Ordinary consumers, or those who are not engaged in commercial operations, may also turn to financing when they find themselves in need of additional money say, to purchase a piece of real estate, or a new car.
Importance of Financing
Finance is considered to be the lifeblood of industry and commerce. Without it, businesses won’t thrive, industries will not flourish, and economies will flounder. That is also most likely the reason why financing is referred to as the “lifeblood of growth”.
The purpose and importance of financing will depend on the reason why you are looking for funds. We will try to name some of the most common purposes.
- Financing helps budding entrepreneurs to start their own businesses. We have earlier mentioned how so many brilliant aspiring entrepreneurs are able to come up with great business ideas, if only they have the money to start the ball rolling. Every year, hundreds of thousands of businesses are started. Every year, hundreds of thousands of these businesses fail. One of the most common reasons for a business failing from the outset is lack of financing. The business owner or founder may not have been able to secure the amount of capital needed to start business operations.
- Financing helps existing business to operate and grow. Businesses that are already in operation will always seek for ways to grow and, in order to do that, they should be willing to spend money on it. Unfortunately, expanding operations – e.g. introducing new product lines, launching new marketing campaigns, entering other markets – requires money, which is why these businesses also need to have strong financing strategies in place.
- Financing helps a business become more competitive. How many times have you heard of businesses cowering away from competition with other, bigger, businesses for the simple reason that they do not have enough funding to go against them? With financing, these smaller businesses can become more competitive until they can gain a solid footing in the industry and the market.
- Financing aids in economic growth. Through financing, small- to medium-sized businesses are able to exist, thereby helping give the economy a boost. Since operations are funded, the business can create new jobs and offer value to the public or the community. From the point of view of the one that provides financing, making good financing decisions will result to returns on their investments, or repayments of funds they have provided, with interest. So it’s not just the recipient of financing that will get all the advantages, because the one providing the funds will also get something out of it.