business finance jobs

business finance jobs

The Impact of Business Finance on Job Creation and Economic Growth

1. Introduction to Business Finance and its Importance

Business finance is integral to job creation, environmental sustainability, and economic growth of all world nations. Economic growth in its simplest terms is defined as an increase in national income or Gross Domestic Product (GDP) that leads to employment, higher wages, and increased circulation of money in society. A combination of both high levels of productivity (more output per worker) leading to high incomes and personal money to influence effective consumer demand results in increased economic growth. Without effective demand for products, prices will either fall too far causing unemployment or excessive production will occur because of excessively high prices. Unemployment raises interest rates and inflation as money circulates to create the low levels of growth necessary to eliminate cyclical unemployment. Business finance growth helps guard against such situations. In this paper, we look at monetary relationships to examine business finance components that lead to effective job creation and environmental sustainability necessary for economic growth. In conclusion, subsequent research should also look at the long-term consequences of using business finance to influence job creation, effective demand, and sustainable economic growth that are needed for a stable economic environment.

Business finance helps create new jobs and provide the necessary services and goods to the ever-growing world economy. Business finance touches our daily lives through jobs where employers use credit to finance company operations in order to hire employees and pay wages. Many companies use short-term loans and accounts payable credit from suppliers to finance their operations with the purpose of obtaining a steady supply of components and goods and services necessary to complete products to market. Marketing and advertising are vital to the overall success of the product in the market. Financial planners, accountants, auditors, bookkeepers, bank tellers, and loan planners have business finance responsibilities in a banking and investment industry structure. Business finance therefore helps to construct the center hub of an economic system that relies on job creation and creation of circulating money in society. Let’s take a closer look at the business finance flow delivery and economic growth components of the world economy.

2. How Business Finance Drives Job Creation

Economic growth, measured by annual percentage changes in real Gross Domestic Product (GDP), could be regarded as an enduring attribute of contemporary societies. It appears that material progress and the pursuit of material well-being are an inherent part of society’s customs and habitual behavior. In recent decades, however, the utilization of business finance has risen markedly and is now in use in a large share of private business transactions. In the U.S. economy, finance has come to be used with great frequency and in all lines of industry. Stimulated by successive rounds of financial innovation, it helped to underpin the nineties surge in economy-wide labor productivity. In particular – and here in the role of a discreet step forward – the rising utilization of VC, LBO, and Public debt finance, and of equity shares, was found to have a lasting and robust effect on labor productivity growth. Taking cue from that result, we now investigate whether a higher level of business finance accelerates the economy’s capacity to generate jobs.

In order to create jobs, a business needs a combination of assets to produce goods and services. The business gets these assets in large part by borrowing business finance money from financial lenders. To pay them their required return – that is, the interest and principal repayment — the business needs a stream of payments from its assets. Therefore, jobs are created when the economy produces consumer goods and services. Both blue-collar and white-collar service jobs are required to produce consumer goods and services. Here we include transportation and utilities, retail, communications, wholesale, and government contracting industries. In the goods-producing industries, construction, mining and earth moving, business equipment manufacturing, and primary and fabricated metals manufacturing, durable goods manufacturing and nondurable goods manufacturing. Residential buildings and auto purchases are the most important consumer goods and structurally important as cyclical seedbeds for job creation.

3. The Role of Business Finance in Economic Growth

Large companies have the opportunity to access the bond market by selling corporate bonds or trading stocks on the stock exchange. Banks have also been able to sell loans to institutional investors and hedge funds after removing reputational risk. However, smaller businesses do not have access to the bond market nor can commercial banks afford to hold loans rather than sell them in the secondary market. The result is 80% of small business finance is held by commercial banks.

In banking, underestimation of credit risk is often tolerable since the consequences of overestimation are minimal. With overestimation, credit flows are restricted which affects economic growth. However, Basel capital guidelines require that bank holding companies and foreign banking organizations maintain risk-based capital levels on loans and other assets. The primary source of risk-based capital is Tier 1 capital which comes from shareholders’ equity and earnings received by a banking company. Since life insurance underwriters must value closely held companies and private companies (stock which is not traded over an exchange), business finance requires much more expertise and knowledge than a loan which is evaluated on the value of inventory, accounts payable, and accounts receivable.

Currently, commercial banks provide 56 percent of credit lines for new and existing businesses in the United States, and 2.5 million Small Business Administration loans had been approved since 1977. The contribution of commercial banks to the economic development is harder to determine since data does not differentiate the number and value of large bank loans from the value of smaller loans (less than $1 million) to large established companies or if commercial banks have been lending to sub-chapter S corporations.

Businesses can be linked with long-term economic growth because of the role they have in developing new products, advancing technology, creating jobs, and developing new revenues for all levels of government. Business finance has been primarily the domain of large financial institutions; however, startups and high-growth companies also provide a significant source of job creation. Therefore, there is a need for greater policy attention to providing capital to small re-capitalization high-growth businesses that are developing technologies that have the potential to generate significant long-term economic growth and generate revenues in the future.

4. Challenges and Opportunities in Business Finance and Job Creation

The vulnerability of financially dependent developmental strategies and of nascent and mature indigenous entrepreneurial activity to international crises and capital withdrawal compels the design of policy instruments that can contribute to the financial stability of business finance on a sustainable domestic basis. Reflecting this problem, there is now clear evidence of a powerful relationship between the efficient functioning of finance systems and national economic growth and development, and of linkages between enhanced financial development and improvements in the financial standing of firms, the rate of private investment, firm creation, and job growth. Such conclusions make sense. To put it bluntly, the evidence is plain that those territories lacking in established financial institutions or other business-specific finance access, which more often than not translates into inadequate market-led access to external finance, are more likely to have economies that persist at low levels of economic prosperity.

It is generally agreed that access to finance is one of the fundamental conditions for driving economic growth and job creation. In recognition, the link between the deployment of excellent economic policy and strategy, and securing the necessary finance through consistent, well-regulated, sustainable, and innovative financial systems has become a sine qua non of job creation and general economic development. The nature and levels of access to finance required can differ greatly by country and income group, but most experience suggests that meaningful jobs, productivity increases, and sustainable development cannot be attained in the absence of competitive businesses and dependable financial intermediation within the economic system.

5. Conclusion and Future Trends in Business Finance and Job Opportunities

The ultimate goal of all Ethiopian businesses in obtaining business finance is to increase or maximize profits. To accomplish such business objectives, businesses (each with their own business aspirations or goals) must undertake business activities, such as the production of goods and the provision of services to meet others’ wants or needs, and the establishment and use of efficient, effective, economic, and profit-oriented methods of performing such operations. In particular, enterprises that prepare or purchase and, thereby, modify, finish, or reinstall production goods for later sale, are engaged in commercial business activities. The main tools employed by commercial businesses are capital, labor, and entrepreneurial skills. Other business functions performed by business partnerships and corporations are financing enterprises, overseeing production, marketing and distributing goods and services, and making decisions. Business organizations must be efficient, effective, economic, and profit-oriented not only to meet expected expenses, but also to maximize the economic prosperity of the business enterprises, i.e., the expected benefit or produce surplus.

There is an intrinsic link between the supply of business finance in any economy with increased job creation and economic growth. Adequate business finance has led to a diversification of the Ethiopian economy, more industrialization, the sharing of technological know-how and expertise, and an increase in the level of per capita income through increased wages, employment opportunities, saving, and capital accumulation. The impact of business finance on the Ethiopian economy, and especially on the reduction of mass poverty, has been remarkable. The impact of business finance seems to be a trend applicable to other low-income African countries. All African countries wishing to obtain economic prosperity, increase job opportunities, and alleviate poverty should, and indeed must, develop and implement business finance policies to increase job creation and per capita income.