Business finance is about the ways by which firms acquire the money needed to start off and to expand their business. Businesses need money if they want to expand the building, for day to day expenses, to pay bills and so on, but it also needs money to enlarge the business; for the company to grow in the long-term, to make up for a shortfall in profits and to have finance when it is not liquid.
Finance can be obtained by the money market and the capital market. The money market is the market for short-term finance and this is used by businesses that need money for a short period of time. The capital market is the market for long-term finance and this is used by businesses that need to borrow money for more than one year.
Various growing businesses need to consider different options to finance their commercial activities. Sole traders, partnerships and limited companies, all may obtain money by applying for overdrafts or loans. Sole traders are most likely to receive money as a short-term loan since they are small and banks will not lend them a long-term loan. A partnership may obtain money by applying for an overdraft and paying it back when the bank manager tells them too. On the other hand, limited companies are supposedly to choose to take a long-term loan since their expenses are much bigger.
A sole trader may consider forming a partnership or a limited liability company. To do this he has to find other people that are willing to invest in his business. In a partnership the business is financed by the partners of the business. A limited company can raise money for expansion by selling shares to people, although a private limited company can only sell shares to family and friends, whilst a public limited company can sell shares to the general public.
20 years ago, hardly any public limited companies existed but since the Malta Stock Exchange being set up in 1992 there as been a rise of almost €3 billion worth of capital on the market for the...