What Is the Importance of Business Finance?

Business finance is a crucial aspect of any company's operations, impacting its overall health and growth potential. But what is business finance exactly? At its core, it refers to the funds acquired for starting, growing, or sustaining a business. Business finance helps in driving both day-to-day operations and long-term strategic goals. 

Whether it’s a new startup looking for funding or a well-established company that requires funds for expansion - business finance is an essential tool for sustainability and growth.

This article serves as an introduction to business finance. It aims to explore the importance of business finance, highlighting the business finance fundamentals, and requirements for application, along with the different types and sources of business finance.

Importance of Obtaining Business Finance

Obtaining business finance is crucial for effective business financial management. It is vital for a company’s growth, survival, and long-term success. It provides the resources needed to capitalise on opportunities, manage risks, and maintain financial stability. 

Several reasons indicate the significance of business finance, such as the expansion of an existing company, investing in growth opportunities, cash flow management, business capital management etc. 

For example, launching a new product line, or investing in a technology upgrade can burn a hole in your savings, unless you have the corporate finance to support these actions. Business funding can help you maintain daily operational stability while working on business growth initiatives. This is why business finance matters. 

Further, instances like economic downturns, natural disasters, or seasonal fluctuations can be unpredictable and disrupt finances. With the right business finance strategies, you can navigate these difficulties with greater confidence and resilience.

Documents Required for Applying for Business Finance

When applying for any kind of finance, it is a good practice to keep all your documents ready beforehand for a quicker and hassle-free process. An application for business finance may require the following documents:

• Identity proof - Proof of identity can be your Aadhaar card, a driver’s license, or a passport.
• Address proof - Utility bills, tax invoices, or a rental agreement may count as your proof of address.  
• Financial documents - Several financial documents such as your bank statements, tax returns, your company’s balance sheet, and profit and loss statements may be required. 
• Business plan - Some organisations may require you to present a business plan to determine your eligibility for business finance.

Please note that this list is indicative and may vary depending on the type and source of business finance. Additional documents might be required based on specific lender or investor requirements.

Documents Establishing Business Existence

Several documents are required to establish the existence of a business ranging from certificates to licenses such as: 

• Goods and Services Tax (GST) Registration Certificate
• Permanent Account Number (PAN)
• Tax Deduction and Collection Account Number (TAN)
• Trade License
• Business Bank Account details
• Shops and Establishment Act License 
• Proof of Address

Additional documents may be required depending on the nature of the business or the industry.

Types of Business Finance

Business finance can be broadly categorised into different types, depending on the source of funding. Some types of business finance include:

• Equity financing - It is the method of raising capital by selling shares of the company to investors such as angel investors, venture capitalists etc. 
• Debt financing - It is the method of borrowing capital that must be paid back with interest over a specific period.
• Trade credit - It is an arrangement where suppliers allow businesses to pay for goods or services at a later date.
• Invoice financing - This is a type of financing where businesses can sell their outstanding invoices to a lender at a discount for access to immediate cash.

Sources of Business Finance

While understanding the importance of business finance, it is essential to consider how different financial sources can affect the business. Some common sources of business finance are:

• Traditional loans - Loans from traditional financial institutions allow you to apply for both long-term and short-term loans according to your requirements with structured repayment terms.
• Venture capitalists - Investors who provide substantial capital in exchange for ownership stakes in the company. They often offer business expertise and mentorship in addition to funding.
• Non-banking financial companies (NBFCs) - Institutions that provide flexible loan options, often with competitive interest rates and faster approval processes.
• Crowdfunding platforms - Online platforms that allow you to raise capital from a large number of small investors. Depending on the platform, this funding may or may not require repayment. 
• Government grants - Non-repayable funds that are awarded to support specific industries and initiatives. They are often accompanied by additional support programs to encourage entrepreneurship. 
• Retained earnings - Profits that are reinvested in the business rather than distributed to shareholders. This source of finance helps maintain control and encourages self-reliance.

Take Advantage of SMFG India Credit Finance Business Loans

There are multiple benefits of business finance including maintaining smooth day-to-day operations and driving growth. SMFG India Credit can support your vision with tailored business loans of up to INR 75 lakhs*, without the need for collateral. Our loans come with competitive interest rates and flexible repayment schedules, making them a valuable financing option. 

Conclusion

The definition of business finance refers to the funds that are required to start, grow, or sustain the operations of a business. The role of business finance cannot be overlooked in ensuring smooth daily operations, seizing growth opportunities, and navigating financial emergencies. 

From traditional loans to venture capitalists and crowdfunding platforms, there are various sources of finance available. Businesses can choose the most suitable option for their requirements. 

At SMFG India Credit, you can apply for a business loan that is tailored to your business requirements and choose a repayment tenure, of up to 48 months, that aligns with your cash flow. You can use our free, online business loan EMI calculator to estimate the monthly outflows and plan your budget effectively.