Business finance or corporate finance is the process of optimizing the wealth of a business concern through allocation of financial resources that have financial value. Financing a business can be done in various ways. A well chalked out plan or strategy must be put in place in order to ensure success in business. Business finance acts as the support system of a business. Finance is required to put the business plans into action and carry on regular business activities on daily basis.
The functions of
business finance are the following:
- Making payments for expenditure incurred in business
- Fulfill the requirements of working capital
- Purchasing office premises and office buildings
- Purchasing plant and machinery
A
business finance loan can be taken in order to meet the various requirements of business. Business finance loans are very flexible in the sense that they can be returned according to the convenience of the borrower as and when his business makes profit. While availing of a business finance loan, the borrower has to furnish statements of profit and loss, business records and credit history. The kinds of business finance loans are the following:
- Loans
- Mezzanine debt
- Bank overdraft
- Leasing and hire purchasing
- Grants and soft loans
- Invoice discounting
- Invoice factoring
- Venture capital
Business finance is raised by multinational companies through issuance and distribution of stocks. Market capitalization is the total value of the issued shares of a company. The types of stocks issued are treasury stocks, dual class stocks, preferred stocks and common stocks. The derivative market is another source of finance for business. The value of the underlying asset determines the value of the financial claims or derivatives. Derivatives can either be options or futures. The investment banks also provide business finance through issuing and selling of securities. Hedge funds are another important source of business finance.
Capital investment decisions are taken by the managements of companies. They perform the duty of resource allocation in order to gain maximum amount of profit from the opportunities at hand. This is also known as capital budgeting. The management also has take decisions on utilization of dividends. These dividends can be distributed among shareholders, invested in different projects or reinvested in already existent projects.
