Business finance is a broad term for things concerning the study, development, and management of financial resources and investments used to acquire, create, or support businesses. Financial concerns include all financial concerns such as working capital, investment, working capital management, borrowing, and other financial problems concerning obtaining credit, paying debts, or generating income from the businesses assets. In United States business finance has three major components namely investment, management and financing. Businesses invest in equipment, land, buildings, and supplies that will be used to conduct businesses. Management funds the functioning of a business. Financing refers to using these three components for the purpose of sustaining and building a business.
The first step in business finance is determining the financial needs of the owners. A well-planned financial strategy should take into consideration future needs as well as existing needs of the business. This financial plan will help businesses obtain needed capital either through the use of loans from banks or other financial institutions, or by creating partnership, acquisition, or purchase transactions. The need for additional capital may arise due to expansion, development of new products or services, laying down more plant and equipment, or reorganizing business practices to accommodate changes in the competitive environment.
Other methods used to achieve business funding include offering stock options or long term loans to customers, issue equity as an option to buy shares in a company, or issue debt to raise funds. Business finance also considers several different types of financing options such as commercial mortgage, merchant cash advances, lines of credit, business finance, business debt, venture capital, owner financing, and owner financing. To achieve better funding results various alternative business financing strategies may be implemented such as use of vendor credit, financial funding, guaranty funding, placement of capital, partnership financing, and ownership loans. Different types of businesses also require different amounts of funding depending upon the nature of their activities.