Finance is a generalized term for all matters concerning the science, development, and management of funds and investments. In particular, it concerns the questions of who lends the money (typically from a lending party) to a business, organization or government and how that money is used or saved. The word “finance” actually has several meanings, all of which are related to financial activity. For instance, “finance” can mean the science of earning a profit, while “capital” can refer to either the money itself or to the ability of a business, organization or government to acquire and manage it. In addition, the words “finance” and “capital” also generally refer to the ways in which resources are acquired, utilized and transferred between persons and institutions, as well as to the processes by which goods and services are exchanged and transferred from one entity to another.
In business terms, “finance” is used to refer to the process through which borrowers acquire or save capital. Business owners use finance in two basic ways: They use it to raise additional funds; they use it to purchase new assets that will be used in the production process and to reduce their costs or to enhance the value of existing assets. In addition, business owners use it to manage and expand their current business. This paper addresses both broad and specific aspects of corporate finance and applies them to understanding both the causes and the effects of financial risk.
The raising of financial capital and the managing of this capital through borrowing and lending is known as business finance. Some of the basic methods of business finance are: borrowing funds from other companies, issuing debt securities, receiving payments from customers in the form of stock dividends, utilizing bank financing, creating and using partnerships, and borrowings from private individuals. Borrowing from other companies refers to the process of borrowing funds from other companies in order to fund the start-up or expansion of the company. Issuing debt securities is a method through which companies finance short-term needs by issuing commercial paper. Through banks, borrowers receive a credit against their commercial property that acts as a guarantee for repayment of the loan. Business borrowers also utilize bank financing to obtain long-term financing for the purpose of purchasing equipment, acquiring land, and/or expanding their existing business.