Regardless of size or nature, finance is the foundation of every organization. It aids in the development and growth of the company. Financing is necessary for any business to operate effectively, and there are many different ways to do it.
With advancements in technology, there are plenty of options available for any business to get finance from. Moreover, with digitization, companies can deal with any financial crisis by quickly applying for a loan from lenders such as banks and NBFCs. Features such as quick disbursal, a completely online application process, good customer support, minimal documentation, etc. make it even more convenient for businesses to opt for a Business Loan.
What Is Business Finance?
As aforementioned, finance is the core of every business, and business owners need to constantly look for financing options to operate the business. The funds which are availed by the business owner to operate the business are known as business finance. These funds can be used for various purposes, such as day-to-day business operations, purchasing any raw materials or goods, buying any fixed assets for the business, etc.
Also Read: Business Finance: Meaning, Sources, and Types
Different Sources of Business Finance
Inventory Financing
Inventory is generally used by companies who are looking for urgent funds. Inventory financing is a short-term financing option where a company keeps its inventory as collateral to get funds from the lender. There are two types of inventory financing options available for the business: inventory loan and inventory line of credit. Inventory financing is popular amongst micro, small and medium size companies.
Invoice financing
Businesses use invoice financing where they borrow the money against the amounts due from the customers. This is a short-term financing option that helps in improving the cash flow of the business, paying any short-term expenses, pay employee salaries and suppliers.
Financial Institutions
It is one of the traditional types of financing options where the companies go to the financial institution, which includes banks and NBFCs, to opt for a loan. These financial institutions have certain criteria for different types of Business Loans.
Why is Business Finance Important in Modern-day Businesses?
Business finance is an ongoing process that requires a complete understanding of the nature of the business. In modern-day business, business finances help in dealing with the immense competition and high demand of customers. With the increase in the competition in the market, customers have numerous choices for a particular product. This ensures that companies are always on their toes to provide the best products; and to ensure that the products are of high quality, businesses require business financing.
Check out the key points highlighting the importance of business financing mentioned below.
Easy availability of the funds
Businesses constantly require financing to deal with various short-term and long-term financial obligations. Better business financing ensures that there are enough funds available throughout the year. Poor business financing can lead to the shutting down of a business or may impact the functioning of the business.
Perfect balance of capital structure
To ensure that the business is running efficiently in the long run, there should be a perfect balance in the capital structure of the company. A capital structure of the company includes a perfect balance of debts and equity and too much of both can impact business negatively. Business financing ensures that the company is not giving too much equity.
Better utilisation of funds
A complete understanding of business financing will help the company to focus on certain important aspects of the business. It will help in reducing unnecessary costs and expenses. Furthermore, some assets remain idle for a long time and increase costs and expenses. It helps in cutting down those unnecessary investments in the company.
Also Read: Why Managing Working Capital is Important for Future Funding?
What are the documents required for a Business Loan?
When you apply for a Business Loan, certain vital documents are required to be submitted to the lender. These documents include basic KYC information including company documents, personal documents, and business documents. Business address proof includes utility bills or rent agreements, and financial documents that include the bank account statement from the previous 6 months.
