its a short but understable summary of business finance made by: bba course student

1. Business Finance
Before defining business finance its necessary to know
about this terms:-
1)Business :-It refer to the process of exchange of good &
services for earning livelihood.
2)Finance:-Money require for doing some activity is
known as finance,
After this we can easily define business finance
that is
“The money require for business purpose & the way by
which it can be raised is called business finance”

2. Business Finance
Purpose of fund in business:-
1) To purchase fixed assets:-Every type of business require some fixed
asset like land , building , furniture , machinery etc. A large amount
of capital is required for purchase these assets.
2) To meet regular expenses:-After establishment of business, capital
are needed to carry out day to day operations e.g., purchase of raw
material , payment of rent etc.
3) To fund business growth:- Growth of business may include
expansion of existing line of business as well as adding new lines. To
finance such growth, one needs more funds.
4) To bridge the time gap b/w production & sales:- we can earn
revenue after sale , but normally in big firms there is big gap b/w these
two. So funds are require to incurred the expenses b/w this time
5) To meet the contingencies:- Funds are always require to meet the
ups & down of business and for some unforeseen problems .

3. Business Finance
Needs and Types of business finance
Needs:-
1) Need for large scale operation:- Due to globalization policy the entire world
has become a big market for businessmen. So to survive in businessworld
businessmen has to expand the horizon of his activities & function on large
scale. The expension of business demand require more fund.
2) Use of modern technology :- It is very important to use modern technology as
to meet the competition production process demand use of modern technology.
Hence there is great need of business to upgrade or purchase modern technology.
3) Promotion of sales:- In this era of competition , lot of money is spent on
promotion of activities like for advertising , hiring sales agent etc.
Types:-
1) Short-term finance
2) Medium-term finance
3) Long-term finance

4. Business Finance
1) Short term finance:- Funds require to meet day-to-day expenses are
known as short term finance. The short term finance is require for the
period of one year or less. The finance requirement for short period is also
known as working capital requirement or circulating capital requirement.
For eg :- purchase of raw material , wages , rent etc.
2) Medium term finance:- it is require for all such purpose where
investment are required for more than one year but less than five years.
Amount require for fund modernization and renovation , special
promotional programmes etc. fall in this category.
3) Long term finance:- The amount of fund require by business for more
than 5 year is called long term finance. This type of fund is required
generally for the purchase of fixed assets like land , building, plant and
machinery furniture etc. The long term finance is also known as fixed
capital as such need fact is , of a permanent nature.

5. Business Finance
Methods of raising short-term finance
1) Trade credit:- It refer to the credit granted to manufacturers and
traders by suppliers of raw material , finished goods , components etc.
Usually time given by suppliers is 30 to 90 days. This type of credits
does not make fund available in cash but it facilitates purchase
without making immediate payment.
2) Bank credit:- Commercial bank usually provide short term finance
to business firms , which is known as bank credits. Bank credit is
granted in following ways :-
*Loans and advances
*Cash credit
*Bank overdraft
*Discounting of bill

6. Business Finance
Methods of raising short-term finance
3) Factoring :-It is a method of raising short term finance for the
business in which business can take advance money from the bank
against the amount to be realized from the debtors .
4) Customer advance:- When the value of order is quite large or
goods ordered are very costly ,businessmen insist their customer to
make advance payment . i.e. a part of the whole payment toward the
sale price of the product which will be delivered at a latter date.
5) Loans from unorganized sectors:- To meet the short term and
urgent need of business , businessmen always have the last option to
take money from unorganized sector . Like loan from money lender ,
friends & relatives. Interest charge is very high in this source of
finance.

7. Business Finance
Methods of raising long term finance
The commonly used methods are :-
1)Issue of shares
2)Issue of debenture
3)Loans from financial institution
4)Public deposits
5)Retention of profits
6)Lease finance
7)Foreign investment
Sources of long-term finance
1) Capital market
2) Special financial institution
3) Mutual funds
4) Leasing companies
5) Foreign sources
6) Retained earning

8. Business Finance
1) Capital market:- It refer to the organization and the mechanism
through which the companies , other institution and the government
raise long-term fund . There are two segment in capital market:-
a) Primary market :- The primary market deal with new/fresh issue
of securities and is , therefore , known as new issue market.
b) Secondary market:- The secondary market provide place for
purchase and sale of existing securities and is known as stock
market or stock exchange.
2) Mutual funds :- It refer to a fund established in the form of a
trust by a sponsor to raise money through one or more schemes for
investing in securities. It is a special type of investment institution,
which act as a an investment intermediary that collect or pools the
saving of large number of investors and invests them in fairly large
and well diversified portfolio of sound investment.

9. Business Finance
3) Leasing companies :-Leasing facility is usually provide through
the mediation of leasing companies who buy the required plant and
machinery from its manufactures and lease it to the company that
needs it for the specific period on payment of annual rent. For this
a proper agreement is made b/w a lessor(leasing company) and
lessee(the company hiring the asset).
4) Foreign sources:- These are broadly divided into two type :-
a)External Borrowing:-These include loans obtained at concessional
rates of interest with long maturity period .The major sources of
concessional loan is –International Monetary Fund , All India
Consortium , World Bank etc.
b)Foreign Investment:-The foreign invest in our country are
generally done in form of Foreign Direct Investment(FDI) or
through foreign collaborations.

10. Business Finance
Types of capital requirement in business finance:-
1)Fixed Capital:- Fixed capital represent the requirement of
capital for meeting the permanent or long term financial needs.
It is primarily used for acquiring fixed asset like land , building
, plant & machinery etc. Investment in fixed capital is long –
term commitment and the amount is invested cannot be
withdrawn quickly.
Factor affecting fixed capital requirement:-
a)Nature of business
b)Type of products
c)Size of business
d)Process of production
e)Methods of acquiring fixed assets

11. Business Finance
2) Working capital requirement:-Working capital represents the
amount of fund invested in current assets like debtors , stock-in-
trade and cash required for meeting day to day expenses , paying
wages rent salary etc. It is also known as circulating capital
because most of the amount invested in current asset is
continuously recovered through realization of debtor and cash
sale of goods, and is re-invested in current assets.
Factors affecting working capital requirement:-
a)Nature of business
b)Size of business
c)Length of production cycle
d)Credit policy
e)Seasonal fluctuation

12. Business Finance
Some important term we need to know:-
Capitalisation:-It refer to the amount at which a company is valued
based on its capital employed or it can be defined as par value of a
company’s shares and debentures . It can be also defined as the process
of determining the amount of capital required by a company.
Over- Capitalisation:-A company is said to be over capitalised if
capital employed is more then the requirement.
Under-Capitalisation:-A company is said to be under capitalised if its
capital employed is less then its proper capitalisation.

13. THANKS A LOT
by:-
Akanksha Tripathi
Adarsh Shukla