There Are 4 Reasons To Secure Capital For Your Business

Can You List The Four Reasons Why Someone Would Need To Secure Capital?

There are 4 and only 4 reasons to secure capital for a business.  Each reason or purpose for business financing will impact the type of lender or investor to approach as well as the manner in which you approach them.

The 4 reasons for seeking more capital for a business are as follows:

Start Up.  At the commencement of a business entity or operation, funds may be required for working capital, fixed assets, intangible assets, leaseholds, inventory, and so on.

Growth.  An existing business looking to expand may require capital to increase its capacity as well as the working capital required to fund a larger volume of activity.

Acquisition.   When one business acquires another, it must purchase either the shares or the assets of the target business with a combination of cash and external capital from debt or equity sources.

Debt Consolidation and/or Re-organization.  In times of business downturn that create financial losses, capital must be injected into the company from debt or equity sources to cover the costs of operation and allow the company to continue.   Another scenario would be when the term structure of the debt outstanding does not match up against useful life of the assets securing it.  In these cases, a debt restructuring will take place to balance out the balance sheet. A third example would be when outstanding debt exceeds the leverage against equity allowed by the lender, requiring a debt reduction and/or an infusion of investor or shareholder equity.

Each of the reasons to secure capital or apply for business financing have their own lending and investing criteria.  A business manager or owner seeking incremental capital would be well advised to gain a greater understanding of what is required for each and work towards identifying lenders and/or investors that are relevant before proceeding too far with any inquires to secure business capital.

We will get into more of the specific for each of these uses of funds in future posts.

About the Author Brent Finlay