Thursday, 23 June 2011

Define Business Finance and describe the sources of business finance

According to George Terry, Finance consists of providing and utilizing the money, capital rights, credit and funds of any kind which are employed in the operation of an enterprise. So business finance means investing borrowing and spending of money with proper manners for the operation of a business.

For any successful business finance has a primary importance. Finance is life blood for business. No business can run smoothly without finance. There is a need of sufficient to achieve the desired results from the business activities.

There are two sources of business funds :
1. Creditors
2. Owners.
Creditors provide the funds temporarily while owners provide the funds permanently.
Following are the important sources of Business Finance :


1. Owners Financing or Equity Financing :-
If a firm needs the financial needs of a business from the funds supplied by the owners, it is called equity financing. When owner uses his own capital for current and fixed assets then he saves himself from the following problem.
a. He will not pay interest to any body because he has used his own capital.
b. He will not give the profit to any lender.
c. He will improve the quality of facing slumps.
d. For getting the loan he will not face any problem.
e. He will be able to control the business with full concentration.

2. None Company Equity Financing :-
If sometimes a proprietor is not able to meets financial needs from his personal capital and he is also not ready to borrow then he can increase the equity capital by admitting any trustworthy sound party in his business.

3. Company Equity Financing :-
By selling the ordinary shares, a company may obtain the equity capital. Comment stocks represent the ownership. The common stock holders have a right to receive profit declared by the company. They can also give vote and sell the shares in the market.

4. Financing Through Reserve Profit :-
To increase the owned capital of the firm a part of the profit is retained in the business. From this capital it can meet the financial needs easily. A firm can also use this part of profit for the expansion of business or to face the depression.


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Anonymous,  19 March 2017 at 10:20  

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Tobias Mann 31 May 2018 at 08:41  

Thanks for the great article!

Unknown 19 July 2018 at 00:20  

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