Corporate Finance: Meaning, Importance, Types

Finance is the heart and soul of any business. It plays an essential role since the beginning of the business to play an important role in promoting its growth. Today, corporate finance has moved away from traditional financing methods. Let's try to understand this topic better:

What is corporate finance?

Business finance refers to the money that entrepreneurs use to meet their needs, including starting a business, raising appropriate funds to finance business operations, raising finance to purchase business capital for a business, or managing a sudden liquidity crunch they are facing. Prominent loan providers have your back and provide finance to cater to the needs of your business.

What is the Importance of Obtaining Business Finance?

The importance of finance cannot be sufficiently stressed. A couple of advantages of obtaining finance can be described as follows:

Business finance can help entrepreneurs purchase land, capital assets, and other assets without much difficulty and can focus solely on commencing the operations of the business
With access to finance, and purchasing land and machinery, upgrading to the latest software and technology is easier, allowing you to walk towards ensuring the highest standards of quality in your industry.
Access to finance can help you deal with contingencies better without disrupting the operations of the company.

What documents are required to apply for a business loan?

Lenders insist on some basic documentation to assess your eligibility for a business loan. Documents required for the business loan include a copy of KYC documents, a copy of proof of address, recent bank statements, proof of income and Documents proving the existence of your company. If the desired loan amount is higher, collateral such as real estate or financial investments may also have to be provided and documents requested. Visit your lender's website or contact a customer service representative for a complete list of documents required to process your application.
Confused about how much money you are eligible to borrow for your business? A business loan EMI calculator can help you calculate the approximate amount you can borrow while ensuring that EMIs payable do not eat into the operating expenses of the business. If you do decide to opt for a business loan, make sure that you repay the instalments on time to make sure that you continue to maintain an excellent credit score in the long run.

Corporate Finance: Meaning, Importance, Types IAS PRAYOJAN

What are the Types of Business Finance?

The major types of business finance are outlined below. You can rate each type and assess its suitability for your business.

Equity financing With this type of financing, the investor owns the company within the investment limits. Equity financing can consist of money brought into the company by shareholders or owners. Investors typically donate large amounts of money to a company in exchange for an interest in the company. When the company starts making profits, the investor earns according to the number of shares owned.
Debt Financing Debt financing is what the name suggests. It is money borrowed from a lender and must be repaid over a period of time at a predetermined interest rate.

What is the source of the entrepreneur's business funds?

Financing can be intimidating for entrepreneurs. It has a huge impact on the finances of your business, so make your decision carefully. In these situations, it is very useful to explore different sources of funding. Funding can be categorized by various parameters and it is entirely up to the entrepreneur to choose the right mix of funding for their business.
The different sources of funding can be classified into two broad categories:

External Funding

Through debt: Entrepreneurs can rely on credit in the form of financial institution loans to meet the unique requirements of their business. Loan providers offer up to Rs50 lakh. Quickly to maximize the opportunities offered to you. But the problem is that business loans usually reach a certain level of annual sales and profits, at least only for existing businesses with stable income. Is to be done. 2 years. Other eligibility criteria may apply depending on the loan policy and loan type
Through equity: Entrepreneurs can present business ideas/projects to investors to apply for funding. If their pitch is accepted, then investors give them the capital they need in exchange for a share in the business. The investors may also then appoint a management team to oversee the use of funds and business operations. This type of funding is especially suitable for startups or small businesses which are looking toward expansion.

Internal Funding

Internal funds are generated by the owners of the enterprise in form of preference shares, equity shares, etc. It helps owners retain their control over the company in form of shares and therefore drive the major decisions relating to the company. It also helps them avoid falling into debt. However, this type of financing is only possible if the owner/developer has enough funds to not have access to lenders or investors.