Topic :- Business finance

Business finance refers to funds availed by business owners to meet their needs that
may include commencing a business, obtaining top-up funds to finance business
operations, obtaining finance to purchase capital assets for the business, or to deal with
a sudden cash crunch faced by the business. Prominent loan providers have your back
and provide finance to cater to the needs of your business.

What is the Importance of Obtaining Business Finance?

The importance of finance cannot be sufficiently stressed. A couple of advantages of
obtaining finance can be described as follows:

• Business finance can help entrepreneurs purchase land, capital assets and other
assets without much difficulty and can focus solely on commencing the
operations of the business.
• With access to finance, purchasing land and machinery, upgrading to the latest
software and technology is easier, allowing you to walk towards ensuring the
highest standards of quality in your industry.
• Access to finance can help you deal with contingencies better without disrupting
the operations of the company.

What are the Types of Business Finance?

The major types of business finance are outlined below. You can evaluate each type and
assess the suitability for your business:

• Equity Finance
In this type of finance, the investors are the owners of the company to the extent
of their investment. Equity finance could consist of finance brought into the
business by shareholders or owners. Typically, an investor contributes a large
sum of money towards the business in exchange for share in the business. When
the business starts generating profits, investors earn the benefits depending on
the number of shares they own.
• Debt Finance
Debt finance is what its name suggests. It is money that is borrowed from a
lender and has to be repaid at a predetermined rate of interest over time.

What are the Sources of Business Finance for an Entrepreneur?

Obtaining finance can be intimidating for entrepreneurs. It is a decision that should be
taken with caution because it is bound to leave a deep impact on the finances of your
business. In such a situation, exploring various sources of financing is extremely
worthwhile. Finance can be classified based on various parameters and it is completely
up to the entrepreneur to choose the right mix of finance for his business.
The various sources of funds can be classified into two main categories:
External Funding

• Through Debt:
Entrepreneurs can rely on borrowings in the form of loans from lending
institutions to cater to the unique requirements of their business. Loan providers
offer quick approval of loans of up to Rs. 50 lakh to ensure that you can make the
best use of the opportunities that come your way. However, the catch is
that business loans are usually only given to existing businesses who have
achieved a certain level in terms of annual turnover and profits, and have a stable
income for at least a period of 2 years. Depending on the lender’s policy and
the type of loan, other eligibility criteria may also apply.
• Through Equity:
Entrepreneurs can pitch their business idea / project to investors to request for
funding. If their pitch is accepted, then investors give them the capital they need
in exchange for a share in the business. The investors may also then appoint a
management team to oversee the use of funds and business operations. This
type of funding is especially suitable for startups or small businesses which are
looking towards expansion.

Internal Funding

Internal funds are generated by the owners of the enterprise in form of preference
shares, equity shares etc. It helps owners retain their control over the company in form
of shares and therefore drive the major decisions relating to the company. It also helps
them avoid taking on debt. However, this type of funding is possible only if the owner /
promoter has sufficient funds to avoid approaching lenders or investors.