According to Batterson and Freeman (2017), Business Capital is the financial resources used to finance companies' activities. Business capital is essential for the growth and continuity of organizations, and it can be raised through several different methods. These methods vary according to the company's market size and ability to profit. This paper will list these methods and their advantages and disadvantages.
Business Capital Development
Direct Financing and Investment:
Investments can be collected from those who believe in the business's success. Primarily, these are family and friends, followed by venture capitalists. Angel investors can also wait for long periods without making a profit (Dodge et al., 2020).
- Advantages: Quick access to funds without complications.
- Disadvantages: The return for this financing is offset by owning part of the company and interfering in its operations in the future.
Loan with Interest:
Funding can be obtained from direct borrowing from banks with a fixed interest rate or the sale of bonds to the company, with the bondholders receiving a specified payment (Jian, n.d.).
- Advantages: More money can be raised this way if the company has financial assets as collateral.
- Disadvantages: When you default on loan or bond payments, the court can sell the company's assets.
Sell Shares:
Companies can have shareholders who share in their profits and losses. This is done through small and family businesses or companies whose shares are traded on the stock market (Dodge et al., 2020).
- Advantages: The tremendous financial complications accompanying determining the value and number of shares.
- Disadvantages: If the number of shareholders increases, they can vote for the Board of Directors. This can lead to a radical change in the company's vision and objectives, which threatens its value and survival.
Intellectual Property Rights:
If the company has several intellectual property and patents, at that point, it can sell it or get a percentage of the profits of the beneficiary companies (Jian, n.d.).
- Advantages: Obtaining this type of financing is very easy when both parties agree.
- Disadvantages: additional costs of intellectual property protection and piracy issues.
Conclusion
There are many other means of capital development, such as franchising (Wieczorek, 2017), direct leasing of the company's buildings, and reinvesting the profits in other businesses far from the company's original business. However, all these methods have flaws and must be studied well before starting them. In the end, capital is the main driver for any investment business; without it, the productive capacity of any company stops.
References
Batterson, L. A., & Freeman, K. M. (2017). Building wealth through venture capital: A practical guide for investors and the
Entrepreneurs they fund. Retrieved from ProQuest One Academic
Dodge, E et al. (2020). 17.1 How Businesses Raise Financial Capital. Retrieved from
https://opentextbc.ca/principlesofeconomics/chapter/17-1-how-businesses-raise-financial-capital
Jian (n.d.). 65 Ways to Finance Your Business. Retrieved from http://www.businesspowertools.com/download/65-Ways-to-
Finance-Your-Business.pdf.
Wieczorek, S. G. (2017). Using Crowdfunding to Raise Capital for Your Franchise Business. Franchising World, 49(11), 22–
24. Retrieved from EBSCO Multi-search