Enterprises need to take cognizance about the sources of business finance. Common knowledge as it may be, many people are still not sure where to reach out for funds. Businesses need business finance not just at the initial stages, but also during different stages of business progression. Different businesses will have different sources of finance. It all depends on which business finance source suits which business.
Business finance can be short-term or long-term. Based on the need, both these categories have their respective business finance sources. A trade credit is a short-term business finance option. Any credit that is offered by a supplier to a manufacturer, without the need for immediate cash payment is called as trade credit. For example, a supplier might provide a manufacturer raw material for production. Payment will not be made immediately, but after an agreed period of time.
Some banks provide short-term business finance by allowing businesses to overdraw money from their accounts. Overdraft facilities are made after a prior agreement by the bank with its customer.
Share capital has been on top of the list for long-term business finance options. A company will sell its stocks to shareholders in return for cash. It can also be defined as a process by which a company raises business finance by issuing common or preferential shares to investors. Investors may be individuals or institutions.
Venture capital is germinal business finance, invested purely for long-term results. Venture capital is also known as seed funding. Investment funds or wealth management companies will identify high-potential companies who are at their nascent stages of development. By investing at the grass-roots level itself, venture funds always have a long-term vision in mind. Venture capital is also given to established companies that have business finance needs for expansion or diversification purposes. Often, even expansion or diversification offers potential as that of a new company.
The growth of the IT sector can be largely attributed to venture capitalists who have provided business finance keeping a long-term perspective. From the year 1995, the software, hardware, and IT industry boomed, leaving venture capitalists with enormous wealth.