What are the different types of capital available to businesses?

Businesses can access various types of capital to fund their operations, including debt, equity, working capital, grants, crowdfunding, and venture capital. Debt capital involves borrowing funds from lenders with a repayment obligation, while equity capital involves selling ownership shares to investors. Working capital represents funds for short-term obligations, while grants are non-repayable funds from government or private organizations. Crowdfunding involves raising funds from individual investors online, and venture capitalists invest in early-stage companies for equity ownership. The choice of capital depends on factors like the company's stage and financial needs.

Advantages ? Equity financing is an option for new businesses with no revenue or those which are yet to attain profitability. ? Investors take on the burden of risk while receiving their returns if the business succeeds. ? There is no obligation to pay the investors thus freeing up your cash for other business means. Disadvantages ? The culture of your company might be influenced by investors, who will also have control over important decisions as they own part of the company. ? Scoring investment takes a lot of effort while reporting to investors regularly results in a lot of man-hours lost. ? Returns are not expected on such investments for 3 to 5 years. However, investors usually exit the business after a period of around 5 to 7 years.

Securing funding for a business can be challenging, but there are various options available. In our extensive network of investors, we often find that the primary consideration is the founders themselves. Investors closely evaluate the competence, vision, and reliability of the founders before committing significant capital. At Gleam Consulting, we have a successful track record of working with startups, midsize companies, and even large organizations to connect them with investors for equity capital. By emphasizing the strength and potential of the founding team, we facilitate meaningful connections that pave the way for successful investments and business growth.

Acquiring funding through debt capital is another avenue that businesses often explore. At Gleam Consulting, we specialize in assisting businesses of various sizes — startups, midsize enterprises, and large organizations — in securing debt capital. When it comes to debt financing, lenders typically assess factors such as the financial health of the business, its creditworthiness, and the purpose for which the capital is sought. Our experienced team works closely with clients to present their business case effectively to potential lenders, showcasing the soundness of their financial strategy, repayment capabilities, and the potential for a positive return on investment.

Advantages ? All types and sizes of businesses can opt for debt financing. ? Ownership of the business is retained which means that profits do not have to be shared over the long-term. ? Repayment dates are known to you, so it never comes as a surprise. ? There are plenty of different loan options that are suitable for different needs Disadvantages ? Repayment of both the principal as well as the interest is mandatory regardless of the status of the business. ? Debt is treated as an expense. Expenses get in the way of reinvesting revenue in the business. ? Risk is involved. Defaulting on payments will result in a loss of the assets you have pledged as collateral.

Let’s also talk about availability of capital. What type of companies have access to what type of debt!? Speaking of types or sources of debt…. Let’s list them: Bank Loans Bond Market Private Debt Normally we think of bank loans which should be available to most businesses in good shape? Is this the case…. It depends. Next… Bond Markets…. Nice Companies can access the bond market as an efficient way to get the capital they need. Think again. Barriers of entry are huge. Doing a proper bond does not make any sense below 100 million (or let’s be generous 50 million)issues size. There are costs associate with issuing a bond which will easily cost you a couple of percentage points. So most corporates can’t access the bond market

An business experiencing low working capital turnover is not maximizing profits. For example, if working capital is tied up in inventory or in accounts receivable that are slow to collect, the working capital deployment is not optimal. Two things commonly cause the value of current assets to decline. One is the amount of uncollected account receivables on the books. The other is the inability to sell old inventory. Many businesses have a false sense of security comes from relying on accounting entries that show large amounts of accounts receivables with no adjustments for the probability of some portion being uncollectible. And outdated inventory may show on the accounting records at an overstated value.

Many founders don't realize that startups can raise pre-seed equity or debt securities through crowdfunding. Of course, you have to identify a platform that will accommodate both, but they are out there. For instance, in the climate space, a platform like Raise Green can help structure equity and debt in various forms, such as SAFEs, preferred equity, convertible debt, and straight debt and other forms.

Capital structure is defined as the means of arranging capital from various sources to meet the need of long-term funds for the business. It is the combination of equities, debt and retained earnings along with various other long-term sources of funding. Capital structure refers to the proportion of each of these sources of funds in the capital, which the company should raise or arrange to carry its business effectively. Thus, capital structure is extremely important and such decisions or practices have a significant role to play. Debt and equity are essential to growing a business. Effective financial management and the right capital structure are paramount to ensuring that businesses are able to obtain funding when required.