Financial Dictionary -> General Finance -> Finance

Finance is the blanket term that refers to the process of acquiring capital to fund the purchase of something, or an investment. It is a term usually used when credit is involved; such as "I am going to buy a new car on finance", rather than using savings or income.

There are many reasons why an individual or business will seek out finance. The individual might need a new car, but doesn't have the funds right away to purchase one, or they might have a business idea and need the finance to get the ball rolling. Equally a business may need finance to buy new equipment or to expand in to new markets.

There are many options for individuals looking for finance. They can take out a loan with interest, that must be paid back in installments over a given time. They can use a credit card to make a purchase now and pay back next month, or a later date with added interest, or they could apply for a bank overdraft to cover them on a large purchase.

There are even more options for businesses looking for finance because financing a business can be a profitable investment. The business can look for a partner, seek out private investors, go public on the stock market, get a business loan or see if they are eligible for a grant from the government. Other options include getting an overdraft, trade credit from suppliers or leasing equipment.

Generally in business finance is either considered short-term or long-term. An example of needing long term finance would be the building of a factory to increase output, or buying out a rival competitor. Short term finance could be just for buying in some extra stock during a period of high demand.