Why business needs finance

Businesses need finance for start up, run the business and expand.

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 the business does fail, the owners may be unable to repay borrowed money.