What is Finance?

You may be familiar with the term “finance” from discussions on the news or in your business class, but what does the word mean? Simply put, it is how individuals, companies, and governments obtain funding for various projects or initiatives. There are three main types of finance: personal finance, corporate finance, and public finance. For purposes of this post, I am focusing on how entrepreneurs finance their business operations. The two main considerations are debt and equity. Companies can raise equity by selling ownership interests in their business. To do this, investors can buy shares of stock in a business. Public companies have stock that trades on exchanges like the New York Stock Exchange or the NASDAQ. Companies can also finance projects through issuing debt, typically through corporate bonds or project level financing. Smaller start-ups typically finance with a simple bank loan. When a company issues debt or takes out a loan, the company has to make interest payments to the debt holder pursuant to a predetermined schedule. In addition to these traditional methods of financing your business, entrepreneurs traditionally looked to finance their venture with private equity and venture capital firms. Over the last few years, we have seen the emergence of crowd-funding websites such as Kickstarter or Indiegogo. In my upcoming posts, I will go into more depth on this topic.

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