Mainly, business finance is known as external assistance to the business that helps the business satisfy its monetary needs. One can take the funds to improve infrastructure, hire more employees, expand the limits of business, etc. To invest significant capital, business owners usually take loans from financial institutions. The amount of loan depends upon the yearly turn over and the total income of the enterprise.
Business finance is further divided into two categories, that is, Equity finance and debt Finance. The first one refers to the borrowing of capital either for long term or short term. In this, one needs to return the money within the time and decided the interest rate. The second one refers to giving partial shares of the enterprise to the investor. In this, the investor acts as a stakeholder in the company and can make changes in the company’s regulating body.
Various business finance sources are categorized into three categories: long-term finance, medium-term finance, and short-term finance. Moving further in the article, let’s discuss all the three sources in detail.
Long term finance
In this, the loan is provided for over five years or a permanent basis. It is mainly taken to apply massive business changes that include purchasing modern machines, modernization of current equipment, buying new places to expand the business, etc. One can take it from multiple sources. Let’s have a look.
- Financial institutions – most of the businesses first try to take the loan from any financial institution. The most common among them are banks. They generally provide big loans for the long term. This enterprise needs to have a good track record in terms of economic conditions. The income tax return also matters a lot in the procedure.
- Offering equity shares – This process business offers the equity share to the investors to generate the capital. These shares are mainly the profit and loss of enterprise.
Loan for one to five years’ time period comes under this category. It is taken to complete the medium-term project or to replace the old machinery. Have a look at various sources of it.
- Insurance companies – these companies offer loans for a medium period. Mainly the amount of its policyholders is invested in the businesses. One needs t pays high-interest rates on these types of loans.
- Private banks – business can easily take the loan from banks for a medium period. For this, they only need to submit the guarantee papers.
It is taken to satisfy the current needs of the enterprise. That includes paying salaries to employees, repair machinery, file income tax, etc. One can take it from various sources.
- Bank overdraft – in this person, can draw the total sum of money above the original bank account balance.
After going through the article, I think now you have some ideas about various financial sources. Today it is not hard to finance the business. However, it also includes the risks and chances of fraud.