With the increase in the spectrum of business activities even in the initial stages of a business, the need for quick financing solutions can not be exaggerated in today’s business world. The requirement has grown rapidly since the development of different business models. Business enterprises require huge amounts to cover expenditure, both internal and external. Internal expenses include staffing charges and operational expenses. External expenditure includes advertisement, payment to various stakeholders including the government and other miscellaneous expenses.
The means of financing an enterprise needs to be selected after due consideration because a wrong decision can lead to operational as well as organizational inefficiencies. It may be in the form of higher pay-outs, insufficient holding of funds in the treasury etc.
Since all major expenditure in an organization is of a capital nature, the ways to finance are of immense importance. There are diverse avenues available to a business concern to finance their requirements effectively. These can be chosen on the basis of the size of the project, profit projections, human resource involvement among others. The two main types are equity and debt. The ways of finance are enlisted below:
• Debt Finance
This includes borrowing money from banks, financial institutions etc. The business enterprise later is required to repay the principal amount and the accrued interest irrespective of whether the organization makes profits.
• Equity Finance
This is a method of raising money through a market where investors are ready to invest, earning dividends on the profits earned by the company in return. Though the level of risk involved in this form of capital raising is high (from the investors point of view), the returns are also higher than that in debt.
• Venture Capital Finance
This is a popular method of finance when the risk involved in the project is high. The venture capitalists provide finance expecting proportionate returns. It is a method that has been recognized as an economic strengthener. The finance is generally provided with a view to ease the financial pressures of a business in the initial stages and aid the strengthening of the firm.
• Other
There are other forms of finance like loans from banks, other financial institutions, and loans from the unorganized sector among others.
Please note that the above given information is inclusive not exhaustive in nature.
