Business Finance: Definition, Importance and Components

Business Finance: Definition, Importance and Components
Find out what business finance means and the types of business finances available. Learn how to choose the right finance type for your business with Square Loans.
by Square Feb 09, 2022 — 4 min read
Business Finance: Definition, Importance and Components

Business finance is the act of securing economic support to supply funds for your business expenses.

Anyone who knows anything about business will tell you that to make money you have to spend money, and businesses often require assistance to secure funding for growth and development.

The business world is fuelled by money, at times can be harsh and unpredictable, so we need to know how to plan and source funds for those times when we need a little extra cash.

That, in a nutshell, is the business finance definition. But what are the different kinds of business finances to choose from?

Types of business finance

Finance options are broken down into two categories: Debt finance, and equity finance.

Debt Finance

Debt Finance is the process of borrowing an amount of money with the promise of paying it back with interest. Business owners like these business loan models because of the repayment structure. The interest rate is often lower than the amount you give up through equity finance and the interest is tax-deductible, so you can devise a suitable payment plan based on your own financial forecasting without having to forfeit a stake in the business. Or, if you choose Square Loans you will pay off the loan as you go, through your day-to-day sales.

Types of debt finance

Equity Finance

In equity finance, funding is exchanged for part ownership or stake in the business. This form of financing avoids the burden that debt financing has on your cash flow situation, there is no negative effect on credit history and the opportunity for company growth through the newly formed partnership with the financer.
Giving up a stake in the company is not for everyone though, it’s common for investors to take a share in profits, and your new investment partner may want to involve themselves in the control and operation of the business, so if you foresee these aspects causing issues for your business you may want to take a different approach to business financing.

Types of Equity Finance

How to choose the right finance type for your business

The values you hold dear and the vision you have for your company are all things you’ll need to consider when deciding how to finance your business. One way to do this is by asking yourself a few questions:

Introducing Square Loans

The stress of paying off a loan is not for everyone, but Square offers a financing solution that works with you, to help you realise your ambitions and pay back your loans at a reasonable pace.

Square’s repayment structure is based on your sales, with no ongoing interest. This means no more stress about having to increase sales to meet repayment needs.

We understand that sales numbers fluctuate, so you’ll pay less on those slow days and make up for it a little more on the better days. The application process is simple, and you’ll never have to bother with scheduling payments ever again. It’s all done automatically, and relative to your business size, which is why more and more business owners are choosing Square over the big banks for their business loans.

This article is only for educational purposes and does not constitute legal, financial or tax advice. Make sure you consult a professional regarding your unique business needs.

The Bottom Line is brought to you by a global team of collaborators who believe that anyone should be able to participate and thrive in the economy.


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