Business Finance: Meaning, Importance and Types

1. Business Finance: Meaning, Importance and Types

2. Thanks to a multitude of financing options at your disposal these days, your dream of starting your own business is not far-fetched anymore. A wide array of lenders and an equally wide range of loan options all make it easier for firms to turn their dream into a living reality. The only problem is that when you’re spoiled for choice, it becomes difficult to make a wise and intelligent decision. A decision that perfectly suits your business interests. Therefore, here we’ve tried to list out all you ever need to know about business finance before you start its pursuit. Business Finance – What it Means In layman terms, it refers to the amount of money loaned away by banks, financial institutions, and other such lenders to establishments for use in business. The capital is generally employed for purchase of business assets, goods, raw materials, equipment, and several other activities essential to the smooth functioning of a business.

3. Types of Business Finance • There are a number of categories to choose from and it’s important for a business firm to have basic knowledge of these various types. Only then it’d be able to make the right choice keeping in line with its specific requirements and also ability to repay. • Debt Finance – This is the normal loan amount agreed upon by a lender to a business and may further be categorised into two – Short-term loans and medium to long-term loans. As the name explains, both these types of finance for business are granted for short durations and medium-to-longer durations, respectively. • Asset-based Loans – These are generally granted to businesses for purchase of assets and equipment, which may include machinery, property for office setups, financing export-import of goods, etc.

4. Mezzanine Finance – This type of financing option is ideal to facilitate expansion of existing business organisations. • Relatives and Friends – Though not very popular and commonly used, it’s also a good idea, particularly for extremely small start-ups which may not be able to afford other financing options for their business. • Importance of Securing Finance for Your Business • Setting up a business and managing it through the year requires hard work and working capital, of course. You’d realise this either right from the beginning (if you’re a start-up) or at later advanced stages (if you’ve an established presence). You need capital at every stage of your business – small or big, for short terms or longer.

5. Not always would it be possible to squeeze out these amounts from what you already have. Therefore, obtaining a business loan would work best for you in a number of ways – • To meet emergencies • To boost higher sales and marketing efforts • To avail better and newer business opportunities • To purchase and equip advanced technologies for improved results • Summing Up • As is evident, working capital is a must for all of your business needs at different times. The ease of obtaining a business loan at such times truly comes in handy.

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