Financial planning and business finance are closely related fields that deal with the management of money. Both fields involve forecasting and budgeting, but they are different in their approach. Business finance focuses on the use of funds obtained from various sources for the purpose of running a business or an organization. On the other hand, financial planning deals with an individual’s or a family’s income, expenses, assets, and liabilities, and how to allocate their resources to meet goals.
Financial planning is more about managing money while business finance involves managing money for a business or organization. Although both fields deal with money, the approach and goals are different.
Business finance and the key elements of business finance
As a business finance buyer, you have many options to choose from, and it’s important to learn about these different options.
Loans. A loan is borrowed money from a lender that is not paid back until a specified date.
Lines of credit. Loans are backed by collateral, such as a savings account, whereas lines of credit do not have collateral.
Factoring. A factoring company buys accounts receivable from a business at 80% of the face value.
Private Equity. A private equity company provides capital to a small business in exchange for an equity stake in the business.
Debt. Debt is borrowed money from a lender to be paid back with interest.
Cash Flow. A cash flow is the amount of cash a business gets from customers after paying bills.
Choose business finance for your business
Are you planning for business expansion? Is this the right time for your business? The cost of sale, the valuation of the business, and the cash flow for a business are all very important factors.
When you are buying business finance, you need to ensure that the money you get is the right kind of finance.
Fixed Rate: Fixed-rate business finance is for buying assets such as land, machinery, and vehicles.
Floating Rate: Floating rate business finance is for buying assets such as land, machinery, and vehicles.
Lines of Credit: Lines of credit are to be used when you want to buy assets such as land, machinery, and vehicles.
Factoring: Factoring is for buying assets such as land, machinery, and vehicles.
Invoice Discounting: Invoice discounting is for buying assets such as land, machinery, and vehicles.
Open Finance: Open finance is for buying assets such as land, machinery, and vehicles.
The key advantages of using business finance
Without business financing, it is nearly impossible for businesses to survive, let alone grow and prosper. Here are some of the main reasons which explain why business finance is so popular.
It is widely available. More and more businesses are turning to business finance for financial assistance. This is especially true for small business owners who are looking to expand.
It is flexible. Business finance is highly flexible. This makes it easier for businesses to meet their needs.
It is fast and convenient. Business finance mostly offers quick and convenient access to capital. This is why it is so popular among businesses.
It can be paid off over time. Business finance is a popular choice for businesses as it offers them the opportunity to pay back their loans over time.
It improves cash flow. Business finance helps businesses to work out their cash flow more easily.
How to apply for business finance?
If you’re looking for a business loan, business loan, or merchant cash advance, or you are looking to start a business, this guide will help you.
Research options. In getting business finance, you should first compare loans. Look for a vendor you trust, such as a bank, who will lend you money. Research different banks in your area and find out if they will give you business loans.
Prepare to apply. Fill out the loan application completely. It’s important for lenders to know your financial situation, which is why they’ll ask you questions about your assets, monthly income, and expenses.
Research your options. Once you make your decision, research different lenders. Compare interest rates and terms. Read different reviews and complaints from previous clients.
Apply online. Once you find a lender, fill out the application and make the necessary payments.
Wait for the loan. Some lenders will give you business loans within 24 hours, although most loans take between 5 and 21 days to process.
Pay off debt.
The risks and benefits of business finance
Before deciding to take out business finance, make sure you understand the risks.
Unpredictable costs. With business financing, there are often hidden or unpredictable costs.
Repayment. Money borrowed through business finance is typically repayable over a fixed period.
Penalties. Some lenders will charge for certain late or missed payments.
Finance fees. The cost of finance charges can be clawed back if your business fails.
Interest. Lenders can charge interest on the finance you borrow.
Early repayment. It’s likely you’ll incur a charge if you repay your business finance early.
Default. If your business does fail, you’ll be held liable for repaying the borrowed money.
Over-borrowing. It’s vital that you only borrow as much as you need.
Commercial property. If your business finances include business property, such as a building, then you’ll likely need to pay rent.
Borrowing against assets. If your business finances include assets, such as equipment, then you’ll likely need to pay rent.
Restrictions. Lenders may impose restrictions on how your business operates or operates.
So, financial planning and business finance both involve managing money to meet their goals. However, they are different in their approach. Business finance focuses on the use of funds obtained from various sources for the purpose of running a business or an organization. On the other hand, financial planning deals with an individual’s or a family’s income, expenses, assets, and liabilities, and how to allocate their resources to meet their goals.