Business finance is a broad term that encompasses things about the management, formation, research, development, and management of small and large capital assets. It includes the use of financial resources to meet operating, investing, and growth requirements. There are three major components to business finance: financing, banking, and lending. These three topics are often interrelated and each has significant influence on the other. The three primary elements of business finance include:
Commercial finance is the process of obtaining needed funding in order to make capital investments and/or repay debts. Commercial finance is related to the operations of a company and is usually established by a commercial lender. Typical forms of commercial finance include: loans, leases, mortgages, partnerships, stock options, purchases, advances, etc. Commercial finance generally ties together the various components of the business venture: where cash is required for investments, where credit is obtained for working capital and for purchases, and where bank loans and lines of credit are used to repay debts.
Cash flow is the key indicator of business finance. Cash flow is essentially, an accounting term that is used to represent the flow of cash in a business. Cash flow is important because it is the driving force behind business finance. When a company requires financing it will first look for lenders based upon the existing cash balances. Then the business requires information about the lenders’ terms and conditions so that the company can determine which lenders meet its needs and which lenders do not.