What is Business Finance

Business finance refers to money and credit employed in business. Finance is the base of business. It is required to purchase assets and for the flow of economic activities. It is infact the life blood and nerve centre of commercial and industrial enterprises. Business finance may be defined as the provision of money at the time when it is needed by a business.

According to Howard and Upton, “finance may be defined as that administrative area or set of administrative functions in an organization which relate arrangement of cash and credit so that organizations may have the means to carry out the objectives as satisfactorily as possible”. In the words of B.O. Wheeler, “business finance is that business activity which is concerned with the acquisition and conservation of capital funds in meeting the financial needs and overall objective of business enterprise”. In the light of the definitions given above, the main characteristics of business finance are as under.

Includes all types of funds

Business finance covers all types of funds employed in business; for-example owned funds and borrowed funds.

Required by all types of organization business

Finance is required by all types of organization whether they are operating on large or small scale, commercial or industrial enterprises.

Amount required varies

The amount of business finance required varies with the nature, type and size of the organization. The larger the size of business undertaking, the larger is the amount of finance required and vice versa of small organizations.

Funds required vary from time to time

The amount of business finance required varies from time to time by any organization. When business is expanding, it needs larger funds and vice versa. No business can be started without an adequate amount of fixed capital.

Need For Finance

Finance is the life blood of any business. In the early stages of development, the businesses were small. The methods of production were simple. The financing of business did not pose any problem to the entrepreneur as it was labor intense. As time passed on, the business began to grow both in size and in methods of production. The use of expensive machinery, round about methods of production, the employment of large number of workers, the bulk purchase of raw material, the marketing of goods at the national and international level etc. It has made the business now capital intensive, the company form of organization is being relied upon now.

The problem of finance in case of sole proprietorship and partnership forms of organizations is not of serious nature. Even today these organizations are run on small scale basis and are financed mostly from their owned capital. Borrowing is mostly on personal level; hence our discussion is confined now to the problems of corporate finance.