Why business needs finance

Sources of finance are required to help start up a business, to successfully run the business and to eventually expand the business

Finance refers to sources of money for a business. Firms need finance to:

  • start up a business, eg pay for premises, new equipment and advertising
  • run the business, eg having enough cash to pay staff wages and suppliers on time
  • expand the business, eg having funds to pay for a new branch in a different city or country

New businesses find it difficult to raise finance because they usually have just a few customers and many competitors. Lenders are put off by the risk that the start-up may fail. If that happens, the owners may be unable to repay borrowed money.