Business finance allows a company to use other people’s money in order to pay for the costs and expenses of normal business operations. The different aspects of this activity are the use of trade credit, review of leases, and creation of a debt and equity mix. Each of these activities is separate but works together under classic business finance projects. Other aspects or tasks may be involved here, though it is up to the company to define them.
Trade credit occurs when a company gets a short-term credit line when purchasing goods from suppliers and vendors. This credit option often has a small limit, such as a few thousand dollars. Companies can purchase goods until they reach the limit and then they must pay off the loan in order to make more purchases. The more likely case, however, is companies who make payments every 30 days in order to not fall behind on their trade credit lines. Business finance employees review the terms offered by each supplier or vendor in order to ensure the company receives the best options possible.
Lease financing allows a company to use loans in order to pay for assets used in the company’s operations. The essential aspect here is the company does not actually take ownership of the item listed in the lease. Business finance employees find the best leases available and often negotiate terms with the vendors offering the equipment. Leases have other inherent benefits as well. First, the company often does not have to pay for maintenance or replace parts; second, companies may not need to place leases on their balance sheets, which can improve the debt ratio.
In business finance, a financing mix represents the use of equity and debt to pay for long-term items used in the company’s operations. Issuing stock is typically the equity portion of a finance mix. Large companies issue stock to both institutional holders and individual investors. This action provides funds from multiple sources to improve capital resources. These funds allow for major changes and additions to operations.
Debt in a business finance mix can represent bank loans or bonds. Companies can obtain traditional bank loans from lenders in order to pay for long-term operations. Bonds are long-term notes issued by a company to investors. The company can set the bond terms using its business finance department. Companies often make a choice between these two debt options after a short review of the benefits and drawbacks of each.