How does business finance work?

From Bill Gates, Warren Buffet (the sage of Omaha), Laurence Tisch to the little investor in the south of the Sahara, the invariable question is, how can one obtain financing for their business?  The answers to this query will vary from person to person, time to time and many more aspects. 

Seasoned business people may have their typical experiential answers.  The nascent ones will also have theirs.  Therefore, whether it is Warren Buffet or that other investor, the answer, though jumbled, is always the same.  This discussion seeks to highlight some of the sources of business financing and how they work for these intending to start businesses.

Personal finances

A majority of entrepreneurs will finance their business ventures with their personal savings, credit cards and other personal assets.  These methods will usually work out if one has accumulated a large pool of money or assets.  It will be possible to sell these assets to gain capital. 

This is especially so in the case of personal savings.  When it comes to the use of credit cards to for financing it is always advisable to take extreme care.  They are, generally speaking, only to be used in situations that need a “quick fix” due to their haziness.

Angel financing

This is a popular mode of financing new businesses and may only be second to personal financing.  Angels refers to a pool of members of the informal risk market which is considered to be the largest pool of capital in the US and other emerging markets (www.businessownersideacafe.com). 

How this works is that a prospective business owner will approach a private interested party with an idea or business proposal.  If accepted, the “angel” will finance it with or without participating in the everyday management of the business.  The proven way of accessing them is through referrals and networking.

Venture capital

Obtaining business financing from these only means that a business owner or idea owner will seek financing from professional investors who specialize in acquiring a stake in young and vibrant businesses. Many venture capital funds, however, occasionally make other types of private equity investments. This phrase, venture capital, has been used interchangeably with private equity in jurisdictions outside of the United States.

Closely related to this source is corporate venture capital which is an initiative by companies to invest in younger businesses outside of themselves or these that were once related to them.

Bank loans

Most people across the world always look for these.  In fact, beginners love to seek the banks help for business financing.  Commercial banks will be able to lend either secured or unsecured loans.  All this will depend on the credit worthiness of the borrower. 

It is obvious for an investor to find that banks will trust the gurus who have had real experience in the business world as opposed to these who are beginners.  However, it is easier to access a secured loan whether you are a first timer or an experienced business person.

Advise for business finance dummies

The working of business financing will depend more on the ability of individuals or firms to follow the often ignored advice.  Choose and research on the idea, get a competent team, determine your entity, get the proper licenses, market your business, get the proper funding and then take action.  These, coupled with proper partnerships, count more than any amount of money accessed to finance a business.

References

1. http://www.octetfinance.com/Content_Common/pg-How-does-a-Business-Transaction-Facility-work.seo
2. http://www.smallbusinessfinancetips.com/warren-buffett-business-factors.html
3. http://www.businessownersideacafe.com