Business finance

What is Business Financing?

Business finance refers to the funds & monetary help needed by an entrepreneur for carrying out the different activities relating to his/her business organization. It is needed at every stage of a business life cycle. For instance, in starting a business, it is essential for acquiring fixed assets, such as land, building, plant and machinery, etc as well as for meeting the day-to-day expenses (working capital) in the form of payment of wages and salaries, purchasing raw materials, etc. In order to successfully operate and expand the business, funds are necessary for promoting and marketing the product; distributing it to the prospective consumers; as well as for managing the firm’s human resource base. Further, in the changing business environment marked by increasing competition, additional funds are desirable for continuous modernization and up-gradation of the business unit.

Despite the fact that the amount of the capital needed by an enterprise depends upon the nature and size of the business, but its timely and adequate supply is indispensable for any form of industrial set up (whether small, medium or large). Recognizing this fact, the Government of India has evolved a well developed financial system in the country. The financial system refers to an institutional arrangement through which the savings in the economy are activated and effectively allocated among the ultimate borrowers/investors. It operates through a network of financial markets and institutions, which are broadly categorized into money market and capital market. The former market deals in short-term funds, while the latter deals in long-term funds. For regulating the operations of money market, the Reserve Bank of India (RBI) is the supreme authority, whereas the Securities and Exchange Board of India (SEBI) supervises the functioning of the capital market.

The major constituents of the Indian financial system are banks, financial institutions, non-banking financial companies and venture capital companies. Banks are the most important source of institutional credit in India and consist of nationalized banks; regional rural banks; co-operative banks; private sector banks including foreign banks. A wide variety of financial institutions have been set up both at the national and the State level, which cater to the diverse financial requirements of the industry. They include all-India development banks; specialized financial institutions; investment institutions; State financial corporations as well as State industrial development corporations. Besides, the non-banking financial companies are a group of institutions which perform financial intermediation in various forms, like accepting deposits, making loans and advances, leasing, hire purchase, etc. Then again, venture capital is an important source of funding for the formation of small and medium enterprises in their early stages of development.

Surrendered this financial set, the Central and the State Governments have been making all efforts for meeting the financial requirements of the entrepreneurs. These are in the form of several financial schemes and funding options offered by the ministries, public and private banks, small industries development organization, national small industries corporation limited, state financial corporations, etc. Thus, India has a sound financial structure which is capable of providing a strong base for setting up of business units in the country.

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