The recent collapse of the stock market, unwittingly triggering a global economic recession that rippled through every corner of the planet and affected every industry in the world, had many minds and mouths talking about the relatively old field of business finance. But what really is business finance, and how does one go about understanding its many characteristics? Read on to find out.
- Description. Business finance, otherwise known as corporate finance, is generally a field of finance dealing with financial decisions corporations make and the different tools, analysis and metrics used in arriving at this decision. Business finance companies are often in the form of lending institutions established for the sole purpose of extending financial loans to businesses that are in urgent need of finances. Most business finance companies choose to focus on certain types of businesses, while some major lending companies offer financial assistance across the board.
- Tasks of a business financier. Basically, a business financier is tasked to do three things: one, he must balance finances within several projects and areas of expenditures through business capital and business investment decisions; two, he must work through the company's short-term assets and short-term liabilities through working capital management; and lastly, he must be able to measure risks on a particular investment and think of ways to manage that risk in a process called risk management.
- How business finance companies earn. Basically, since business finance companies deal with providing business loans to other firms, they get their stable revenue stream from interests. But some business finance companies today get a high amount of profit from buying invoices from companies. Basically what they do is purchase these invoices and pay off the companies' deliverables, and charge a little extra to be credited to their account.
- Business finance on the news. The recent collapse of the financial market in the United States is due to mismanagement of business finance. Since sub-prime mortgages are high-risk loans offered to small families, business finance companies tended to charge a higher rate of interest. And since the debtors couldn't afford to pay off their debts and started filing for bankruptcy one by one, these business finance companies were left with nothing to operate upon. Knowing the intricacies of the market and the field of business finance could've prevented this from happening.
Usually, business finance is also called investment banking. In this area of finance, you invest on a pool of resource that other people could use, as opposed to investing on capital where you could get a certain product or service for your money. People practice business finance because most corporations and companies always need money to fund their operations and projects; business finance is therefore a good way to earn passive income by charging interests for these loans. However, the volatility of the market, which caused the recent global recession, is a bit tough to predict, so you really have to be wise with where you're putting your money.