Funding your business can be tough, especially with the current state of the economy working its way out the other side of the pandemic. Some businesses have had to outsource finance from third parties like direct lender loans or equity financing. However, if you’re lucky enough to get by without it, you’ll still be injecting cash into your business in some way. Another time period that can be likened to the rapid changes we’ve seen in the economy and a potential sign of things to come, is the 1920s. Let’s look into the impact of business funding between this time and 2020 and see the differences and similarities.
1920’s Economy
In the 1920’s, funding your business would probably look a little different from how we would do it now. Thanks to the invention and implementation of electricity, the economy boomed as factories became reliant on it to build their products. This then created more jobs and helped push the economy through the effects of World War 1 that were still felt. People were also visiting recreational places like cinemas and almost all homes had a radio. This time period was heeded with warnings about a potential crash, but things still continued to grow at an exponentially fast pace until the stock market crashed in 1929. However, the 1920’s paved the way for businesses yet to come.
The Benefits Of 1920’s Business Funding
In the 1920’s, there were lower taxes so people, and in turn businesses, had more money. This meant you could reinvest more money into your business without needing financial help from outside sources. That isn’t to say that people didn’t start reaching out when they needed it. One of the biggest investment banks J P Morgan Jr started providing business loans to people, which is now still a common way for people to access funding. However, most people actually preferred equity financing and favoured selling their stock for funding instead of direct lending. People could also buy shares a lot easier too. For instance, they would buy them “on the margin” which meant they would pay 10% of the value using their own money, and then pay the rest using money borrowed from the bank. This ease of stock purchasing would also help businesses with their financial funding, allowing them to grow and succeed.
Laissez-Faire Capitalism
Another point to note about the 1920’s economy and business funding, is that it didn’t come from the government. Instead, the economy relied on something called laissez-faire capitalism, which is basically the French phrase for “leave it alone”. This allowed businesses to fund themselves, use bank loans, and equity finance without having to go through the government. This also meant that businesses could really do as they please, as they had no governance watching over them. Businesses could operate independently without any governing body, but the flaws in this method were soon felt. This approach meant that businesses could treat workers poorly and there would be no repercussions from the government.
The 2020’s Economy And Business Funding
Now 100 years later, our economy is trying to deal with the impacts of the pandemic, just like in the 1920’s when they were recovering from the war. However, we don’t have a brand new invention that can help the economy boom again. Instead, we have to take different measures to ensure business survival, and funding is one way to do just that.
Funding businesses in 2020 can be quite simple. You have a lot of the same options as they did in the 1920’s, except you can now apply for government loans and grants. The most popular ways to fund your business nowadays are via a loan, either from a bank, investor, or the government, equity financing, and crowdfunding. The latter is a relatively new concept that’s gained traction online thanks to websites that act solely for this purpose. Crowdfunding allows you to source money from the public to help support your business, and most of the time they get something in return. That can be anything from being the first to receive the product to even becoming a shareholder.
The Main Differences
The major difference between the 1920’s and the 2020’s business funding, is that 100 years ago it wasn’t regulated. This allowed anyone to loan money or invest in businesses to ensure their success. The boom also meant that people had more money to spend at all these new businesses popping up, so keeping your business going wouldn’t have been as tough. However, this level of self-regulation led to problems further down the line and government measures became necessary.
In the 2020’s there are many more ways to fund your business, but the competition may be fiercer so it can be harder to survive changes in the economy. The pandemic also affected many people’s lives and their bank balances, so even with financing your business, it still may not have been enough. Government regulations also ensure that businesses adhere to strict guidelines and financing is more regulated. This prevents people from being taken advantage of by loan sharks and ensures that they’re financing is used legitimately.
Business funding has changed dramatically over the past 100 years. Although it may have been easier to secure funding back then, when the Great Depression hit, all of that went away and many businesses didn’t survive. Having an unregulated source of business finance was also bad in the long run and the introduction of government guidelines has helped more businesses than it was previously thought it could. If you’re thinking of financing your business, make sure you consider all your options as each one has its own benefits and drawbacks. Injecting some funding into your business could be your ticket to success.
