Sources of Business Finance

Business finance refers to the external financial assistance a business may utilise to meet its monetary needs. The funds so availed can be used as capital investment to improve infrastructure, increase working capital, expand business operations, etc.

The funding needs of a business can be classified under the following categories –

• For fixed capital such as land & building, plant & machinery, etc.
• As working capital like raw material purchase, payment of wage, salaries, rent, etc.
• For upgrades to the latest technology and software.
• To diversify product range and upscale operations.

Enterprises can raise business finance from various sources to fulfil their funding needs. They can include loans from financial institutions, invoice financing, raising capital by offering market shares, crowdfunding, peer-to-peer lending, etc.

Loans and advances from financial institutions are available against minimum eligibility, making them among the more popular sources of business finance.

Finance in business can be broadly categorised under two types –

- Debt finance
Better known as borrowed capital, debt finance is either a short term or a long term funding to be repaid along with interest to the lender.

- Equity finance
It is a type of finance raised in exchange for partial ownership of the business. Equity finance can either be capital introduced by the owner or by the investor/s. In case of the latter, the investors become shareholders of the company.