What is Business Finance? Know its Types & How to Apply?

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Securing Business Financing in India is vital for self-employed professionals and business owners aiming to fuel growth, sustain operations, or to add on new business lines. This blog will discuss the intricacies of securing Business Financing in India. From understanding the fundamentals to exploring various sources and best practices, we are here to equip you with the knowledge and insights needed to make informed decisions on your journey to secure finances for your business.

What is Business Finance?

Business finance is the practice of securing and managing funds in a business environment. This includes a diverse range of activities such as strategic planning and budgeting, raising capital through various sources, managing cash flow to ensure operational efficiency, and making informed financial decisions that influence the company's profitability and growth. Effective business finance ensures that a company has the necessary resources to achieve its goals and maintain financial stability. That's where Business Loans come in.

It is about finding the right way to get the money your business needs to succeed. Whether you are a small or a well-established company, understanding how to get financing for a business is essential for your growth and success.

What are the Types of Business Finance?

Here are the common types of Business Finance:

Equity Finance

In this type of funding, owners or shareholders invest in the business and become partial owners. They earn returns based on their ownership when the company makes profits.

Debt Finance

It is an easy way of financing where a company borrows money from a financial institution and pays it back with interest over an agreed period.

Angel Investors

These are individuals or companies that can provide financial support to businesses. You can connect with them through financial consultants, lawyers, or other business advisors.

Personal Equity

This regulated form of financing requires the assistance of a professional team of legal, financial, and accounting advisors.

Asset-based Lending

Companies can secure loans using their assets or acquisitions. This financing can be used to purchase machinery, equipment, lease, or buy properties for the business.

How do you find Business Financing options?

Finding the best sources of Business Financing involves a systematic approach. Start by assessing your funding needs and reviewing your finances. Business incubators, accelerators, and strategic partnerships offer more than just capital. Negotiate favourable terms with suppliers and explore business credit cards.

Networking in professional circles and consulting financial advisors can reveal opportunities. Maintain a strong business plan, consult professionals, and compare options before choosing. Keep in mind that different financing sources suit different business stages and needs.

Who Should Apply for Business Finance?

You might need Business Finance at different stages of your entrepreneurial journey. Whether you need funds to manage your ongoing operations or you are aiming to expand, Business Finance can be your go-to solution.

Here's a quick look at the reasons to apply for Business Finance:

Expansion - When your business is thriving, and you want to grow even more,
Working Capital - Managing everyday expenses, like paying salaries and bills, becomes more manageable.
Equipment Purchase - Need new machinery or technology for your operations?
Debt Consolidation - If you have debts, Business Finance can consolidate them into a more manageable solution.

Also Read: Business Loan Repayment Strategies

Factors Affecting Business Loans

You can get your business financed through different sources, like top lending institutions, NBFCs, or private financiers that credit business owners. However, you should always choose a reliable and recognised financial institution like Kotak Mahindra Bank for a hassle-free experience.

But before everything else, consider these factors when taking a Business Loan.

Interest Rates: Compare interest rates from different sources to ensure you get a deal that best suits you.

Repayment Terms: Check out the repayment schedule. Does it match your business's cash flow, or will it strain your finances?

Collateral Requirements: Unorganised loan providers might ask for collateral, like assets you own. Be prepared for this and evaluate if you're comfortable with it.

Credit Score: Understand the credit score requirements. Financial institutions may prefer businesses with a good credit history.

Flexibility: Consider how flexible the financing option is. Can it adapt to changes in your business's needs and financial situation?

By weighing these factors carefully, you can select the best source of Business Financing that aligns with your business's goals and financial situation.

Documents Required to Apply for Business Finance

Here are the required documents to keep handy when applying for Business Financing:

Identity Proof

PAN Card
Driving License
Passport
Voter's ID
Aadhaar Card

Address Proof

Passport
Driving License
Voter's ID
Aadhaar Card
Utility Bills
Bank Account Passbook (Updated and no more than 3 months old)

Ownership Proof

Agreement Copy
Electricity Bill
Maintenance Bill with share certificate
Municipal Tax Bill
Share certificate

Business Continuity Proof

Shop and Establishment certificate
Tax registrations (VAT, Service tax, GST registrations)

Firm Constitution

MOA (Memorandum of Association)
Partnership Deed
GST Registration Certificate

Financial Documents

Latest two years financials
Latest Tax Audit Report
GST Returns

Banking

Last six months bank statement (Business Accounts)

Why should you opt for Business Financing?

Facilitating Asset Acquisition

Business Finance empowers entrepreneurs to acquire essential assets like machinery, real estate, and furniture, providing the tools necessary for business operations.

Fostering Growth

Business expansion often demands substantial investments. Business Finance supports growth by enabling the introduction of new products and the expansion of existing lines of business.

Managing Daily Expenses

Day-to-day business operations involve expenses such as raw material purchases, tax payments, rent, salaries, and bills. Adequate Business Financing alleviates the strain of meeting these operational costs.

Adopting Technological Advancements

Staying competitive in today's business landscape requires embracing technology. Business Financing facilitates investments in cutting-edge technologies, enhancing return on investment and reducing errors.

Hiring Talent

While technology is crucial, a skilled workforce remains essential. Hiring the right employees involves expenses that Business Financing can cover after thorough market research.

Handling Emergencies

Businesses must prepare for unexpected disruptions, like fund shortages, fires, or strikes. Proper Business Financing acts as a safety net to navigate these challenges.

Tips for managing Business Finance

Create a Budget

Start by crafting a budget and a financial roadmap for your business. It's a simple but helpful step to track income, expenses, and cash flow, enabling you to make smart financial choices.

Keep Records

Maintain updated records of all financial transactions – invoices, receipts, bank statements, and more.

Plan Ahead

Being proactive is key in Business Finance. Plan for future expenses, set financial goals and have a contingency plan for unexpected events.

Monitor Cash Flow

Cash flow is your business's lifeblood. Regularly track it to ensure you always have enough cash to cover expenses.

Track Expenses

Categorise and record all expenses diligently. This practice reveals where your money goes and helps you make necessary adjustments.

Embrace Technology

Leverage technology, including online accounting software and mobile apps, to streamline financial processes and enhance efficiency.

Also Read: Best-unsecured business loans

Conclusion

Securing Business Financing in India is a key step for entrepreneurs and established enterprises. By understanding the available options, planning strategically, and leveraging the right resources, you can embark on your business journey with financial confidence.

Whether you're a small business seeking capital infusion or a seasoned entrepreneur looking to expand, the knowledge gained from this comprehensive guide will help you navigate the intricacies of Business Finance successfully.

Here at Kotak Mahindra Bank, we offer Business Loans of up to Rs.1 Crore with minimum paperwork and competitive interest rates to eligible entrepreneurs. Apply now!

FAQs

1. What is meant by Business Finance?

Business Finance refers to obtaining funds to operate or expand a business, often through loans, investments, or personal savings.

2. What are the methods of financing a business?

Methods of financing a business include loans, investments, crowdfunding, grants, and personal savings.

3. How Can I Finance a Business?

You can finance a business by seeking Business Loans from banks, attracting investors, using personal savings, or exploring crowdfunding.

4. How are most small businesses financed?

Most small businesses are financed through personal savings, bank loans, and investments from friends and family.

5. What is the best financial option for a business?

The best financial option for a business depends on its specific needs. Still, a balanced approach using a Business Loan from a reputed bank, investments, and personal savings is often recommended.