Importance Of Business Finance

Finance is the lifeline of any business and is needed in its every stage right from its establishment, growth to expansion. It is therefore unavoidable and imperative to understand the business finance.

Meaning Of Business Finance

Business finance refers to the funds availed by the business owner to meet various financial needs. The capital funds invested by the owners may not be sufficient to meet business’s financial needs. Thus the need of business finance arises. There are several banks which provide business loans.

Business loans may be used for

• Commencing a business
• Purchase capital assets
• Manage business operations
• Dealing with a sudden cash crunch in the business

What Is The Importance Of Obtaining Business Finance?

Some of the advantages of availing business finance are as follows

• Entrepreneurs can use the finance to purchase land, capital assets and other assets. As a result, they can focus on commencing the operations of the business.
• Getting the land purchase, machinery purchase, technological upgrade finance makes it easier for the business to attain highest standards of quality.
• Finance helps the business deal with its contingencies without disrupting its operations.

What Are The Documents Required For Applying For Business Finance?

Loan providers need some documents for verification purposes before they approve a business loan. These documents include

• A copy of your KYC documents
• A copy of your address proof
• Latest bank statements
• Proof of income
• Documents to prove existence of your business

In case the loan amount is significantly huge then you may have to pledge collateral such as a property or financial assets. In such a case, you will have to deposit documents pertaining to the collateral as well. You may contact your loan provider to get a complete list of documents needed.

To avail a loan, you should determine the eligibility criteria and EMI from the loan provider. Remember to assign the EMIs that suit your repaying capacities and do not eat into the operating expenses of the business. If you avail a business loan make sure to make timely payments of EMIs so as to maintain a good credit score in the long run.

What Are The Types Of Business Finance?

There are many types of business finance available in the market. You should evaluate each type and assess them as per your requirement before choosing one.

• Equity Finance –

In this type of finance, typically an investor invests a large sum of money in the business in exchange for shares of the business. The investors become the owner in the business to the extent of the number of shares they own. The benefits shareholders get on profits also depends on the number of shares they own.

• Debt Finance –

It is a type of loan where the funds are borrowed from a lender and needs to be paid back at a predetermined rate of interest over a specified period of time.

What Are The Sources Of Business Finance?

Availing business finance will impact the other decision making aspects of the business, hence all the sources of business finance must be explored thoroughly by the business owners. There are two sources of business finance

External Funding

• Through Debt – Entrepreneurs can avail business loans from lenders like banks and other financial institutions like IIFL. These lenders disburse the loans of up to Rs. 50 lakhs quickly. The lenders have various terms and conditions to provide business loans like the business should have earned a minimum amount of annual turnover and profits, have a stable income for over 2 years and other terms depending upon the type of loan availed.

• Through Equity – The entrepreneurs can pitch their ideas to investors who if impressed may invest in exchange for a share in the business. A management team may be appointed to keep a check on the use of funds and business operations. This source of business finance is best suited for start-ups and small enterprises which are looking towards expansion.

Internal Funding

These are generated by the existing owners of the business in the form of preference shares, equity shares etc. Since the ownership is retained over the company, major decisions are continued to be taken by the owners. It helps owners to avoid debt. This type of funding is possible only if the owner has sufficient funds to avoid approaching lenders.

Conclusion

Business finance is a way to finance business needs such as purchasing an asset or land, meeting business operation expenses etc. You may avail business finance through investors by giving them a share in the business or by taking a loan from the lenders.

IIFL Finance online business loan is the ideal loan for a new business as a source of capital for all your business needs. The business loan interest rate is attractive and affordable to ensure you do not have to cut down on essential expenses of your business. Through extensive market research, the instant business loan process is tailored to ensure that it is at par with being the best business loan in India.