Capital is what every small business needs to get off the ground, stay afloat, and grow. A common mistake is to think that capital is just cash, but it covers much more than that. There are multiple ins and outs for a small business to understand about small business capital to make it a long-lasting success. Here is what every beginner should know about this type of capital.
What Is Small Business Capital?
Small business capital is any asset a company has that can turn into value. It is anything that can help you create value in your business. It is whatever your business has that can make money.
In other words, it is not just bank accounts that count as capital; other forms include brand names, stocks, bonds, and company equipment like cars, machinery, and parts. It can also include land, buildings, and patents.
Services a business offers do not count as capital, however. Company services and products can generate profits, which go into the company bank account.
Types of Small Business Capital
There are four types of small business capital: working capital, debt capital, equity capital, and trading capital.
- Working capital is the funding that meets the business’ daily operational needs
- Debt capital is capital gained through taking on loans
- Equity capital is the value businesses get from selling stocks or investments
- Trading capital is a reserve that businesses keep for making investments
Small Business Capital Gains & Losses
Small businesses can experience capital gains and losses over time. Some investments will increase the business’s worth, while others might cause it to lose money. A gain happens when an investment yields a greater value in return, and a loss when it yields a lower value in return.
For example, if you purchase equipment and your return on investment is greater than the equipment cost, you have capital gains. If you purchase equipment and sell it at a lower price than you bought it, you have a capital loss.
Ways to Grow Small Business Capital
The way you grow your small business capital should primarily come through your profits. It is a process that takes serious time and dedication. One can gain capital through investors, crowdfunding, and small business loans as well. If you are looking for a small business lender, Pure Finance Group is here to help!
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