All businesses have a need for capital to finance their daily activities and also for expansion. There are basically two methods of acquiring the finance: equity or debt. Both methods have advantages and disadvantages and the business must make a decision on the method to embrace depending on it’s long term objectives and the level of control the management desires to maintain.
A business needs capital to be able to run its day to day activities. There are various sources of financing for businesses, whether it is for start up of for expanding. But before a business chooses a source of funding, the following must be taken into consideration:
1. Choosing the right source of capital is a decision that will influence a company for a lifetime.
2. The money is out there, the key is knowing where to look for it.
3. One must be creative in capital search as they are in developing their business ideas.
4. You should be well prepared before approaching lenders and investors.
5. The entrepreneurs should never underestimate the importance of making sure that the “chemistry” between themselves, their businesses and their sources of funding is a good one.
Capital is any form of wealth employed to produce more wealth. It is generally categorized into three: fixed capital, working capital and growth capital. Fixed capital is used to purchase a company’s permanent or fixed assets, working capital represents the business’ temporary funds and is used to support the business’ normal short-term operations while a growth capital is the one required when a business is growing or changing its primary direction.
Basically there are two sources of capital: through equity funding or through debt funding. Equity financing is basically the personal investment of the owners and it offers the advantage of not having to be repaid with interest; the investors just hope to claim their benefits from the
References: Cengage, Gale. Encyclopedia of Management. 2006 Tsuroka, Doug. “When Financing A Small Business, Compare Options, Keep It Simple”. Investors Business Daily. May 2004 Jefferson, Steve. “When Raising Funds, Start Ups Face The Debt Vs Equity Question”. Pacific Business News. August 2001 Zimmere Scarborough Wilson: Essentials of Entrepreneurship and Small Business Management. 5th Edition .Pearson: 2010