Definition of capital, types, and sources of capital.

1. CAPITAL

2. Introduction
 Capital includes assets such as machinery
and equipment needed to produce the good
or service; and money needed for
investment in business.
Not having enough capital causes a
business to fail since money is needed for
the business to operate through hard times
and provides a good chance for it to
become a profitable enterprise.

3. There is no one best method of
raising capital but the following
questions must be considered.
 How much capital will I need?
 How much of my own capital can I
put into the business?
 How much capital can I get from
someone else?
 How can I convince someone to
provide me with capital?

4. Your ability to plan the financial needs of
your business will play a major role in
how much money you will be able to
raise.
Furthermore, lenders will not put money
into a business unless they have
concrete evidence that you have made
a sizeable financial commitment to your
business.
This assures them that you will not back

5. Businesses require different amount
and types of capital to get started. In
some cases the new company may
require money for only a short period
of time until it gets off the ground and
commences operations in full.
The following list highlights the
TYPES of capital that exist and the
SOURCES of capital one may
consider.

6. TYPES OF CAPITAL
 Equity capital is where the venture is financed by investor
who puts capital into the venture for equity share.
 Fixed capital includes machinery, equipment and vehicles
owned by the company. These assets are so called because
they cannot easily be turned into cash.
 Circulating capital / Working capital includes raw materials,
finished and semi-finished, goods, bank and cash balances.
These assets can easily be converted into cash.
 Debt capital refers to borrowed funds that must be repaid at
a later date. This is any form of growth capital a company
raises by taking out loans. These loans may be long-term or
short-term such as overdraft protection.
 Venture Capital refers to the money used to finance start-up
businesses and activities considered to be risky, and may not
be able to attract financing through commercial banks.

7. SOURCES OF CAPITAL
 Friends and family: The entrepreneur accesses private
financing from family and friends. This can also take the form
of equity financing where the family or friend becomes a
shareholder.
 Personal savings: This includes life insurance policies
where the owner can borrow against the cash value of the
policy; A home equity loan, that is, accessing a loan backed
by the value of the property.
 Government grants: Accessing a government backed grant
to facilitate start-ups e.g. in Trinidad and Tobago the
government offers the Micro-Enterprise and Training grant
aimed at needy persons who want to undertake a small
business venture or access skills training
 Loans: Access loans from commercial banks backed by
collateral.
 Crowd funding: This is the use of small amounts of capital
from a large number of individuals to finance a new business

8. SOURCES OF CAPITAL
continued
 Selling shares
 Forming Partnerships
 Debentures
 Trade or Supplier credit
 Life Insurance Policies
 Leasing Companies
 Venture Capitalist

9. Hope you learnt something!