Every business needs puhunan or capital to start up and grow – no matter how small your business may be. For most would-be entrepreneurs, the question is usually: “Saan ako kukuha ng puhunan?”
The good news is you can access different types of capital in business, which means you have other ways to run it other than financing options.
Also read: 8 Ways to Finance Your Small Business in PH
What is capital in business?
Capital is any funds or assets that help you run the business and generate an income. It covers the day-to-day expenses for things like production of the goods you sell, employees’ wages and training, commercial lease and marketing efforts, among others.
Not all capital is in the form of money. Business capital can be your expertise and skills, equipment and commercial property. Any asset that can keep your operations going and generate revenue is considered capital.
Capital vs. Assets
Capital in business refers to both “funds” and “assets,” and the two have separate records in accounting.
Under accounting, assets are resources (can be objects or people) that belong to the business, like a bank account, properties, vehicles or office furniture. Capital on the other hand, is the money (“funds”) you put in your business. You use that capital to buy assets, such as equipment, office lease or raw materials for your products.
Accounting records separate these items to regulate the business’s cash source and flow.
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The different types of business capital
1. Financial Capital
Also known as investment capital, these are financial assets used to create future revenue. It comes from two sources: debt and equity.
Debt capital is borrowed funds with interest whereas equity capital is an ownership stake in a business, which is generated when stocks or shares are sold. Unlike debt capital, equity isn’t repaid and doesn’t come with interest.
Some examples of finance capital are:
- Profits
- Bonds
- Initial public offering (IPO)
- Partnerships/ business deals with other companies
- Bank loans or debt
2. Constructed or Manufactured Capital
Constructed capital is about human innovation. It covers tangible assets intended to improve efficiency without exhausting resources. It’s the type of capital that can create products.
Some examples of constructed or manufactured capital are:
- Buildings
- Transportation
- Technology
- Communication devices
- Machinery
- Tools
- Electricity
- Cultivated ecosystems
3. Natural Capital
Raw materials to create constructed capital are from natural capital. Apart from air, water, and food to sustain our lives, many of the products we use are made from the earth’s resources such as plants, and animals. Alternative sources of energy, such as solar, wind, or geothermal energy are also included in this category.
Some examples of constructed or manufactured capital are:
- Minerals
- Soil
- Wind
- Water
4. Human capital
The classes you take, the books you read, your experiences, and any steps you took for professional growth can all contribute to business. As Benjamin Franklin once said, “an investment in knowledge pays the best interest.” This is human capital, a collection of resources that allow you and your workforce to generate economic activity.
Some examples of human capital are:
- Education
- Knowledge
- Training
- Creativity
- Strength
- Life experience
- Physical health
- Decision making
- Problem-solving
- Mental and emotional well-being
- Social connections
3 Ways to raise business capital
A good business idea will stay as an “idea” if you don’t have the right funding to start a company. With the right mindset and some patience, you can access capital to get your business off the ground.
1. Crowdfunding
Small contributions from a large group of people (strangers) — this is the essence of crowdfunding. Kind of like bayanihan. Many entrepreneurs have taken to crowdfunding platforms to pitch their business ideas, and sell investment opportunities to thousands.
For business owners, it’s a chance to source capital for a startup or expansion. For would-be funders, it’s an opportunity to get in on what could be the next big thing in business.
2. Equity Financing
Equity financing is a good source of capital if you’re planning to expand the business with a new product or service. You can sell shares of your company to get the cash you need through what’s called an initial public offering.
3. Strategic Partnerships
An option to using cash as capital is forming alliances that would give you access to resources. You can strike up a partnership with suppliers who can give you a line of credit to augment your expenses until your finances are stable.
Raise capital, get your business going
Money is not the only form of capital to start or even grow your business. Although a business loan is usually what some entrepreneurs may look into to fund their ventures, other options are available. From leveraging your skills and expertise to going public with your company, your sources for business capital are diverse and beyond cash.
Understanding each one can allow you to figure out what capital you should focus on, navigate its challenges, and explore alternative solutions to ensure business stability and success.
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More helpful tips for your new business:
A Guide to Calculating Business Startup Costs
Online BIR Registration: A Complete Guide
Your Tax Obligations as an Online Seller
