Business finance is often confused with business financing but they are not really the same thing. Finance is a broader term that includes things regarding the creation, management, and research of financial assets and liabilities. The financial statements generated by the business represent the outcome of those efforts and must be prepared correctly in order to meet accounting standards. Proper business finance has many goals and objectives and they include improving the productivity, increasing profit levels, reducing market risk, minimizing financial obligations, meeting liquidity requirements, and funding future operating and capital expenses.
There are many types of business financing options available to businesses ranging from borrowing funds from banks and other financial institutions to equity and retained earnings fundraising. Banks and other financial institutions may provide short-term business financing with terms requiring payments to be made after a specified period of time. Small business financing comes in the form of loans from personal savings and existing income sources such as pensions and other employee benefits; venture capitalists who provide funding for early-stage companies with good growth potential; owners lending to startup companies whose future potential is unknown; and government-sponsored enterprises that distribute funds to businesses based on need rather than on credit history.
Borrowing funds from investors is considered the most effective way of obtaining needed funds in business finance. Equity financing refers to the use of company stock or ownership in the business for the purpose of raising funds. Common types of equity finance are used for general business purposes such as purchasing land, building structures, and equipment; constructing new houses and buildings; purchasing raw materials; and selling businesses. These types of equity finance opportunities have been a source of vital business finance for many years and will continue to remain popular until the availability of commercial real estate increases in key cities around the country.