Sources of Capital in Setting up a Business
Capital is one of the resources required to set up a business establishment.
Capital mainly refers to those assets that are used to start and continuously operate a business.
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 includes raw materials, finished and semi-finished, goods, bank and cash balances. These assets can easily be converted into cash.
Sources of Capital
- Personal savings of the owner or owners
- Assistance from friends and family
- Loan from a financial institution
- Selling shares
The significance of collateral in accessing capital to establish a business
Collateral is anything of value that is used to secure a loan. It is required by financial institutions for the approval of loans. If the loan is not repaid then the financial institution has the authority to seize the borrower’s collateral. Forms of collateral include: bank balances, motor vehicle, dwelling house, land, machinery and equipment etc.