Business finance is a broad term encompassing issues regarding the science, development, and management of financial resources and funds. It deals with the raising, allocation, and allocation of monies to meet business objectives. The discipline of business finance seeks to maximize the return on investment by using financial instruments such as capital assets, marketable securities, financial debt, retained earnings, and retained resources. Financial problems can arise from either business processes or from external conditions, such as inflation, deflation, and credit or debit cycles.
In addition, business finance also considers other issues, such as working capital management, information systems, venture capital, entrepreneur relations, and internal control mechanisms. There are two main components of business finance: personal and corporate debt. Personal debt refers to debts owed to individuals by businesses or corporations. Corporate debt is an obligation of the corporation itself. Within the business-finance field, there are two types of creditors: venture capitalists who provide short-term loans; and banks who provide long-term loans.
Short term financing is needed when there is a temporary shortfall in cash flow or when an initial investment is made that does not generate a return. For example, if a manufacturer needs funds for research and development, it may require financing for the period prior to the equipment being sold. During this period, the manufacturer must have access to short term finance in order to fund its research and development programs. Similarly, an investor who purchases stock in a company needs to have access to short term finance so that he can purchase enough shares to create a value for his investment. All of these situations require the use of business finances.