Investing for Success: How to Secure Capital for Your Business - Research Paper

Introduction

Investment is an act by which operations are developed with the aim of generating more money. It involves investment, product purchase, including stocks, annuities, and bonds. All these processes require capital financing to be accomplished. Thus, funding is essential for any corporation to be successful for a more extended period of time. Corporations and businesses are directed towards producing - transactions for purposes, creating wealth. However, these entities do not operate just without a specific direction hence the need for planning for investments. Besides, organizations involved must finance the processes within, including marketing, directing, controlling, and purchasing of assets (Herciu and Ogrean, 2015). The nature of investment dictates, the capital financing position of management; large corporations will demand more capital than smaller ones. Due to the limitation of resources, financing at the corporal level may be difficult demanding external sources. This paper examines significant capital sources available in the market and the choice of corporation depending on capital value costs.

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Executive Summary

David and Venkateswaran (2019) highlight that diversification of business capital is one of the measures of controlling the risks in businesses. Dependent on various sources of resources increases the chances of improving a downturn, whether potential along with broadening financial resources to meet the needs of the corporation. Capital generally represents financial assets and can be classified into three different significant sub-groups, including debt and equity capital. Since corporations need these capital resources to run effectively, management is charged with the responsibility of securing enough wealth for investment (David, 2019). There are various sources recognized to be significant sources of capital, including capital from personal finance, love money (capital), venture capital, angel capital, business incubators, and grants and subsidies from the government.

Problem Statement

Corporations, as well as businesses, are at significant risk associated with the financial operation of the firms. About half of all newly opened investment collapse has been associated with financial constraints during critical periods. Thus, limitations in financing investments, especially new ones, tend to collapse. Capital rising is an effective measure to consider in ensuring that the venture runs successfully. Additionally, obtaining capital in the market sources is an issue by itself since the cost associated with varies widely among various choices of sources.

Sources of Capital and Analysis

Capital sources are used for the rescue of various situations in investment and thus are acquired under terms and mode of return. Among the conditions and term inclusion are the time of arrival, interests, and the manner of recovery (Baule, 2019). Classification of capitals is based on the period of return, the origin of money, control, and ownership. Before opting for specific market capital, evaluation of the terms by the corporation should be in consideration. According to Baule (2019), the greatest challenge in running any investment is the decision on the selection of the source of finance. Thus, an analysis of capital sources is a significant critical area enabling corporations and organizations to determine the best source of capital financing (Baule, 2019). Depending on the period of return, capital is classified as medium, short-term, and long-term.

Debt Capital

Debts capital sources (Commercial borrowing) are the most accessible form of capital funding for any investment. Corporations seek commercial loans after the completion of the startup phase through a loan officer (Dhaliwal, Judd, Serfling, and Shaikh, 2016). The banks are then able to assess the funding legibility of the investment by analyzing credit rating, repayment ability, and collateral available. Accordingly, the capital provider (bank) may be interested in a close examination of venture in terms of the management plan, trends of investments, and how the enterprise is going to utilize the capital in quest (Dhaliwal et al., 2016).

According to the review by Dhaliwal et al. (2016), commercial banks may decline to fund the investment forcing the investors to seek further borrowing from lending commercial companies. However, the choice of an investor to this source of capital depends on the availability and limitations of the money from other sources; this is due to the high rates charged on this form of payment. Acquisition of funds from this source, although more natural as compared to borrowing from commercial banks, requires more collateral along with high interests to be able to mitigate their flexible lending risks. Thus, corporations and investors may be inclined to this source of capital since ventures are up to gaining profits and expansion. Dhaliwal et al. (2016) suggested that higher interest charged and stringent collaterals is a limitation to the most organization considering that the venture might be newly formed having fewer assets to act as collateral in the process of obtaining the capital.

The study by Dhaliwal et al. (2016) suggested that capital in debt form can originate from the leasing of assets and finance. Leasing companies make resources available to the investor under their own terms. In this form of capital acquisition, corporations rent what they require instead of acquiring money from other sources to buy the assets. There are various forms of capital leasing, operational lease, and the capital lease. The executive contract provides the investment with the assets needed along with money to support activities in the organization. With this form of capital acquisition, corporations are required to pay monthly rates, which are usually lower. Besides, there is an open consensus in which the investor through negotiations can be able to terminate the contract without being penalized. Thus, new investments rely on this form of capital as a cancellation, along with lower monthly payment, which provides flexibility in case of a decline in the sale. Another way of the capital source is "capital lease," which allow one to use the assets thought its useful life without provision maintenance services.

Herciu and Ogrean (2015) suggested that investors may opt to secure capital from lending programs in the government. This source is more affordable to all corporations and businesses as the government is inclined to fostering development economically and therefore appreciates taking part in the funding. The review by Herciu (2015) revealed that capital funding by the government is the cheapest. Capital acquired from these sources charges low return interest allowing corporations and businesses to enjoy long term benefits. Besides, the rate at which the government offers a loan is much lower compared to other debt capital. Additionally, securing money for investment from this source sometimes may not require a guarantee. Corporations and businesses may opt to this form of debt financing since the government at long last may decide to subsidize the rates, further reducing the cost of repayment (Herciu et al., 2015). The flexibility of this form in the payment plan allows the investor to pay without penalty on defaulting along with forgiveness of loan in case-specific criteria are met. However, the Acquisition of capital from this source demands a high criteria selection.

The study by Dhaliwal et al., (2016), debt capital can also be obtained from peer to peer capital sources. It is an alternative capital funding for the corporation that does not rely on traditional institutions offering finance. It is a cheaper source of funds that investors can opt for since matching or requirement by lender and investor significantly lowers its cost. Additionally, they offer attractive rates of loan repayment resulting in projects with increased return rates. Accordingly, they provide a simple acquisition process that is secured along with higher reliability as compared to other sources of capital in the market (Konchichki, 2016).

Equity Capital

The review by Antoniou, Doukas, and Subrahmanyam (2015) revealed that equity funds sources are acquired through the exchange of preferred or common stock. It is the primary funding of most of the businesses and corporations apart from additional debt capital. Capital funding from these sources is at more significant risk since claims of creditors come before that of the investor during corporate liquidation. According to Antoniou et al. (2015), there are various sources of equity capital corporations and businesses can rely upon, including institutional venture sources, private investors, strategic and corporate capitalist, overseas investor sources, and intermediaries.

Equity Private Investors' Capital Source

The study by Antoniou (2015) suggested that young corporations and business access capital, either in groups or separately (Individually) form investors who may need to be part of the projects. Capital funding from these sources demands a higher return rate on the investment as compared to traditional capital sources hence expensive. However, they give more favorable conditions than debt capital since they aim at upholding the startup of an investment rather than investment viability (Antoniou et al., 2015). Investors in these sources are referred to as angels as they are up to helping the investment to a startup rather than taking consideration of return profits; thus, they are the forefront of promoting a venture set up.

Equity Institutional Venture

This is an equity-based source of capital that includes capital venture from funds managed professionally (Antoniou et al., 2015). They offer a large amount of funding to investment projects ranging from millions to billions. However, investors may utilize these capital sources is only they show high-growth and able to reach a minimum of $25 million within five years of operation. This form of funding is, however, limited in supply since primary consideration before funding is in the investment portfolio by the capitalist. However, the source provides extensive use of the funds, including expansion, financing, and other management costs required by an investment. According to Antoniou (2015), capital from this source falls among the most expensive return cost, for instance, capitalist demand for equity on the investment, which is costly to the corporation or business venture. Accordingly, acquiring the capital is somehow tricky since capitalists are choosy on investment ventures to fund hence limited to popular organizations.

Equity Venture Capital

It is a form of wealth that can fund both small and large corporations with the potential to grow. The investment allows capitalists to buy shares in the company, consequently becoming part of the company. The study by Antoniou (2015), funding originates from outside the venture to support its operations and can be able to achieve a large amount of capital to fund substantial investments that could otherwise not be successful. This form of capital acquisition trades equity in venture ownership rather than payment of the money invested, consequently resulting in loss of full control of the founder investors. The study by Antoniou (2015) further revealed that, since the founders' trades equity with capital, the investment does not have to pay for the money; instead, interest is shared according to the number of shares owned. In doing so, risk in the venture is diversified and thus can be used by corporations and new enterprises without other cheaper sources of funding.

Capital Source Analysis

According to the review by Konchitchki (2016), for a company to see growth, it is essential to analyze different capital...