Sources of Business Finance

Business Finance Meaning and Definition

Business finance refers to external monetary assistance availed whenever a business runs short of capital. The funds enable individuals to maintain daily operations, expand market reach, procure raw materials, invest in infrastructure, and many similar necessities.

Different sources of business finance

Financial Institutions: One of the best ways to meet your business expenses is to apply for a business loan. All you have to do is to meet the simple eligibility criteria and submit the required documents. If your business is 3 years old and you have a credit score of 750, you can apply for a business loan from Bajaj Finserv and get funds up to Rs.45 lakh to meet your business's big expenses.

Angel Investors and Venture Capitalists: Equity capital is another form of business financing. If you have a start-up or a new firm, you might not have enough business vintage to qualify for a loan. In this event, you can reach out to angel investors and venture capitalists for financial aid. Angel investors and venture capitalists invest in companies or start-ups in return for equity and profits.

Accounts Receivable or Invoice Financing: You may not be able to fund your business outlays like the purchase of raw materials or staff's salaries if your accounts receivables are unpaid. If this is the case, you can opt for invoice financing and use those unpaid invoices as collateral to get funds. Leading financial institutions offer invoice financing loan to help businesses solve the liquidity crunch.

Inventory Financing: Inventory financing is a secured loan where a company pledges its inventory as collateral. This credit option is more suitable for a small business that doesn’t have access to other financial solutions. You can use this loan to buy products that can be sold later, and these products can serve as collateral for the advance.

Business credit cards: Business credit card is one of the most convenient sources of business finance. It is the best suited for busy businesses that need urgent funds to carry out their daily operations-buying new stock or equipment. It is an unsecured credit facility, so you are not worried to lose any asset. However, if you opt for business credit card, you should be careful not to exceed your credit limit as it might affect your credit rating.

Business cash advances: It is a short-term source of business finance for businesses that take card payments. With business cash advances, you can get funds based on your card sales and in return, you need to pay an agreed percentage of your customer card takings. This means that you pay only when your customers pay you.

Crowdfunding: This financial solution is becoming a popular choice for new businesses or start-ups to get funds. If you have an exciting business idea that can transform into a success story, then crowdfunding can be an apt choice to get funds. All you must do is sign up with a crowdfunding website, share your project and promote it well to encourage donation. One of the biggest advantages of this financial solution is that you can get access to funds even if you have a low credit score. However, this form of business finance can help you only for a bigger project and not for the business’s everyday expenses.

There are various other sources of business finance like peer-to-peer lending, crowdfunding, etc. Avail such external financing opportunities when in need and do away with funding worries for your business.

FAQs

What do you mean by 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.

What are the types of finance in business?

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.

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