List the Sources of Capital for a Business

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If you're considering becoming a business owner, then make sure you have enough capital to cover all your expenses, including start-up costs and money you might lose during difficult times. You might not have all the capital to cover these expenses, so you'll have to look to other sources.

Self-investment

  • The first source of capital is yourself. Perhaps you can't provide all the funds for the business's operations, but maybe you can supply a portion of the capital. Consider all the savings, investments, insurance policies and credit cards you have, and decide how you can use those sources as business capital. Remember, however, that borrowing money against the value of a life insurance policy and using credit cards will cost you money later. Consider your ability to pay back the money you intend to borrow, before you use these sources of capital.

Banks and Investment Companies

  • Banks and investment companies are the biggest capital sources for businesses. Although banks can lend money, their loans are generally conservative. You must show bankers your profit projections, business plan and personal business record before they will offer you a loan. Investment companies will give you money if they can become part owners of the company. Investment companies are generally more liberal than banks, but their costs are higher -- they may want a higher rate of return. And again, as with a bank, you'll have to prove the future success of your company to the investors.

Family and Friends

  • Family members and friends may have extra money to loan you that they aren't using themselves. They may also offer you a loan at an interest rate that is much lower than what your bank offers. If you are borrowing from family or friends, then speak with a lawyer and draw up an agreement in writing. And beware of unrealistic payment plans; investments from those closest to you can ruin relationships.

Alternatives

  • If the more traditional options for generating capital are not generating enough money to start your business, then consider alternative sources. If you have enough money to start your business, then consider the credit that your suppliers offer; they may allow you to pay for items over an extended period of time. Your customers are also very important capital sources; the profit you make on every sale increases your capital.

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References

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