Acquisition of Funds

Capital is the lifeblood of all businesses. It is needed to start, operate, and expand a business.

Capital comes from several sources: equity, debt, internally generated funds, and trade credits

Equity financing raises money by selling a certain share of the ownership of the business. It

involves no explicit obligation or expectation, on the part of the investors, to be repaid their

investment. The value of equity financing lies in the partial ownership of the business.

Perhaps the major source of equity financing for most small start-up businesses comes from

personal savings. The term bootstrapping refers to using personal, family, or friends’ money to

start a business. [5] The use of one’s own money (or that of family and friends) is a strong

indicator that a business owner has a strong commitment to and belief in the success of the

business. If a business is financed totally from one’s personal savings, that means the owner or

the operator has total control of the business.

If a business is structured as a corporation, it may issue stock. Generally, two major types of

stock may be issued: common stock and preferred stock. It should be noted that in most cases,

owners of common stock have what are known as voting rights. They have a proportional vote

(directly related to the number of shares they own) for members of the board of directors.

Preferred stock does not carry with it voting rights, but it has a form of guaranteed dividend.