Business finance is an essential component for the growth and expansion of your business. It is also a critical requirement for day to day activities of your business. The sources of business finance are various and can vary from short to long term funds.
Short-term sources of business finance include trade credit, commercial paper and working capital loans from commercial banks. These funds are required for a period of one year or less.
Long-term sources of business finance include debentures and equity shares. Equity investments are risky as they tend to become unreliable with fluctuating profits.
Retained profit is another source of business finance. This is money that remains in a corporation but does not go out to shareholders. As a result, it can be reinvested to expand the business.
Other sources of business finance are debt and venture funding. Debt financing is easy to obtain and does not involve extensive paperwork or formalities.
Venture funding is a form of finance provided by investors or venture capitalists in exchange for a share of the company’s profits. New firms can approach angel investors or other venture capitalists for their financing needs.
External sources of business finance include a variety of individuals, vendors and public or commercial banks. Businesses can gain finance from external sources in two ways: as an investment in their company or by selling their assets.
Internal sources of business finance are funds that are generated by owners of the company. Examples of internal sources of business finance are retained profit, owner’s capital and accounts receivables.