Inadequate Source of Capital

Topics: Finance, Capital accumulation, Investment Pages: 2 (286 words) Published: March 2, 2013
Inadequate source of capital

Capital is the money invested into the business in order to start or grow a business. It is used to expand and improve the operations in the business. No business can be carried out without it. Therefore we can conclude that capital is one of if not the most important part in a business. When businesses are unable to accumulate enough capital in order to efficiently run and advance their business this leads to businesses not prospering.

Investments
In order to expand and develop a business, there need to be investments within the business. Examples of investments a business can engage in are in: * Machinery/equipment that will enable him execute his services better * Stock for selling to people and to keep up with demand and supply * Land/building

* Raw materials

However in order to engage in investments for the business you need money or capital.

NO/LOW CAPITAL = NO/POOR INVESTMENTS

How can a business advance and continue running if there is a lack of capital present?

However there are solutions in which the business can do in order to source capital for funding the business. Here are four main ways in which a business can source capital:

* Savings of the entrepreneur- this is using personal finances, also known as “bootstrapping”. Money is obtained from personal checking and savings accounts of the entrepreneur.

* Capital borrowed from a bank or other financial institutions- a secure or an insecure load given by the bank can be borrowed for capital

* Capital raised by the sale of shares in the business

* If the business is already established it can reinvest the profits (capital) from previously operating the business to gain greater amount of capital.
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