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Tata Capital > Blog > Loan for Business > What is Business Finance – Importance & Definition

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What is Business Finance – Importance & Definition

What is Business Finance – Importance & Definition

Regardless of their size, all companies require a steady cash flow to maintain seamless operations. But sometimes, internal funding may prove inadequate or inaccessible. This is where business finance proves to be invaluable.

Business finance provides a much-needed financial boost that allows you to grow your existing business, enhance production capabilities, or acquire inventory. It ensures that you get funds timely and keep your business thriving.

In this article, we will explore the concept of business finance, its importance and benefits. So, if your business is in need of funds, keep reading!

What is business finance?

Business finance means the money a business owner borrows to fulfil business-related financial requirements.

You can avail of business finance for various purposes like:

#1 Starting a new business

#2 Buying important assets like equipment, machinery, or vehicles

#3 Running day-to-day operations and executing them smoothly

#4 Handling unexpected financial difficulties related to business, like equipment repair, drop in sales, or supply chain disruptions

Types of business finance

#1 Debt finance

Debt finance is like borrowing money from financial institutions that you must repay with extra money called interest. You can opt for short-term, medium, or long-term debts as needed. Before applying for loans:

  • Make sure you have a good credit score to get a loan at lower interest rates.
  • Check your eligibility
  • Be ready with all the documents for a smooth application process.

#2 Equity finance

This financing method involves raising funds from owners or shareholders who acquire a part of ownership in the company. As shareholders own part of the company, they can earn returns based on their investment when the company makes profits.

#3 Angel investors

Angel investors are generous supporters who fund businesses. Angel investors are typically successful entrepreneurs, business professionals, or high-net-worth individuals seeking investment opportunities to diversify their portfolios and support promising ventures. You can connect with them through financial advisors.

#4 Asset lending

Asset lending is a financing method where you can use your business assets as collateral to secure finances. Assets may include machinery, equipment used for production, real estate, inventory, or intellectual property.

#5 Crowdfunding

In this method, many individuals willing to invest in your business are involved; hence, it is referred to as crowdfunding. You can utilize the internet to connect to a wide range of people and simplicity. A crowdfunding platform serves as a link between you and potential investors.

What are the benefits of business finance?

After learning what is business finance and its types, let us focus on the importance of business finance or why you should consider availing of business finance.

Although using your resources or savings to fund your business is easy, it can be risky due to potential financial losses, limited growth, especially for new companies, and the need for emergency funds. Hence, there is a need to consider alternative sources of business finance.

#1 Growth and working capital management

With business finance, you can get the capital needed to expand operations, invest in new technologies, and explore market opportunities. In addition, it helps you maintain sufficient working capital to manage day-to-day operations and cover unexpected expenses.

#2 Financial stability

With access to adequate funds in the form of business finances, your company can navigate through economic fluctuations, market uncertainties, and challenges like sales drop with greater ease.

#3 Finance on time

There may be some time-sensitive business deals, new technologies, or opportunities that can improve your products and boost sales. Business finance provides timely funds, ensuring you take advantage of these opportunities.

#4 Building creditworthiness

Availing of business loans and timely repayment can help build a positive credit history, improving your company’s creditworthiness for future financial needs.

#5 Bringing in skilled people

While technology is essential for business success, having the right team is still crucial. Finding and hiring talented employees involves research and high costs, which business financing can help cover.

Here is what you should do before arranging business finances

Now that we have answered “What is business finance,” let us look at its benefits. Here are some helpful tips you should keep in mind before arranging business finances.

#1 Future planning

Before arranging business finances, consider your business objectives and create a plan to outline how you will finance expansion, invest in new opportunities, and manage risks. Also, make a repayment strategy and plan your budget accordingly. Seek advice from financial advisors to get valuable insights.

#2 Reduce financial burden

Setting aside some of your profits as an emergency fund helps deal with unexpected events, such as sudden market changes or unforeseen expenses. Prioritize debt repayment and avoid taking on new debt without careful evaluation.

#3 Stay informed with financial reports

Regularly reviewing financial reports, such as profit and loss records, cash flow statements, and balance sheets, helps you to make informed decisions.

Get the key to success with Tata Capital

Business finance can be a prompt resource for all your business needs, especially for cracking time-sensitive deals and covering unexpected expenses. You can arrange finances from debt equity finance, get connected with angel investors, or opt for crowdfunding. Make sure to consider future planning and repayment strategy before arranging business finances so that you can use those finances effectively.

For availing of business finance, there is a need for a trusted financial partner. Tata Capital can be the one for you. Tata Capital’s online business loan offers the convenience of applying from anywhere. The hassle-free process spares you from running around or drowning in paperwork. Moreover, you can select a repayment tenure that suits your preferences. So, discover what is business finance, apply for business loans with Tata Capital, and stay on top of the game.