Business financing is funding available to companies to launch, maintain or expand their operations.
If you’re a small business owner, there really isn’t any need for us to harp about how expensive running a company can be. Between everyday costs that cut into your earnings and unforeseen business emergencies that can flip your operations upside down, turning a profit doesn’t come easy.
This can be problematic because you have to maintain a steady cash flow if you want to be successful.
Fortunately, business financing can help small companies push through financial hardships and expand their operations.
Business Finance Definition
The definition of business finance is the credit and capital made available to qualified companies to make investments, buy assets or goods or otherwise fund operations. Business financing also refers to the way a company manages its money. It can be used to make costly purchases, refinance debt and cover everyday expenses.
Types of Business Financing
Businesses typically obtain financing by taking on debt or selling company stock to investors, referred to as debt financing and equity financing, respectively. Many companies use both of these funding types as a means of getting capital for their businesses.
Debt financing refers to funding you obtain through a lender, which you must repay. Debt financing can be used as finance for a business purchase. A small business loan is an example. Debt financing typically accrues interest until borrowed funds are repaid in full. With debt financing, you’ll likely secure your debt with assets, such as real estate, or offer a personal guarantee to repay the funds.
Equity financing refers to capital you receive in exchange for selling partial ownership in your company through the sale of shares. Unlike debt financing, equity financing doesn’t have to be repaid.
How Can Small Business Owners Use Business Financing?
Business financing is flexible, and in most cases, you can spend your funds however you see fit.
Use the funds as a means of:
- Working capital financing to help maintain a healthy amount of cash on hand
- Inventory financing to purchase an abundant supply of product during a busy season
- Business equipment funding for financing a business purchase of technology, machinery or supplies needed for production
- Funding to hire more personnel
- Financing to expand or open another location
That’s the beauty of business financing and business finance loans: You’re in control of how you use the funding. You’re able to stand back and assess your company’s needs, carefully deciding what areas of your business need the most improvement and will reap the most benefits.
However, it’s important to note that no two business funding types are the same.
That’s why it’s crucial to do your research on financing your business before considering equity financing or debt financing through business finance loans.
Financing Your Small Business
Choosing a business funder is a serious decision and shouldn’t be taken lightly. Conduct your due diligence and research the business financing options available to you before making a decision.
Be sure to determine how much funding you actually need beforehand. And make sure you’re choosing the small business financing option that works best for your company, whether you’re considering business finance loans or investor funding.