Business finance is a broad term which includes aspects of financial management that deal with the acquisition, analysis, development, maintenance, management, utilization, and disposal of financial resources of a business. It includes the setting up of business credit facilities and the provision of loans. It also includes the use of business assets for debt purposes and the provision of emergency financial assistance.
A manager in the field of business finance is responsible for the identification, assessment, allocation, monitoring, and evaluation of funds. He may author a plan or prepare a blueprint for the allocation and use of the funds. The manager may delegate certain financial responsibilities to lower level employees, or undertake major financial tasks himself. Ultimately, the ultimate responsibility for all financial decisions lies with the financial manager.
There are two broad classifications of business finance: active financing and passive financing. In the first, funds are used to buy working capital, plant, equipment, and real estate; and in the second, it refers to the raising of external funds to meet operating or capital expenses. Active financing includes the borrowing of funds by a company for specified purposes; passive financing is the transfer of assets from one form of financing to another, such as the selling of its assets to raise funds. A company can utilize both active and passive financing in different ways to raise funds. Borrowing from others to increase funds is the most common means of passive financing; using the value of assets as collateral to acquire financial loans from banks and other financial institutions is the most common active method of obtaining financing through advances to third parties.