Corporate Life Cycle Series: Capital Lending Generates Wealth.

The meaning of capital to the company is just as important as food to organic life.

If the company runs out of funds, it will starve to death.

This is also true at another level.

Just as the requirement of life for nutrition will change with its growth and age, a company's demand for capital will change along with its steady development.

At the beginning of the company, private lending is enough, but with the development of the company, more complex sources of funding are needed.

Even a highly experienced manager, if he is not a financial expert, will discover how terrible financial is.

This is usually one of the areas in which management teams find it most necessary to increase their professional skills.

However, to make financial management easier to understand, we need to grasp a few simple concepts.

First, capital is a commodity.

It is bought and sold on the market, and the price fluctuate with the law of supply and demand.

As mentioned before, it is one of the necessary commodities for a company to operate as well as labor and raw materials.

When we carry out financial management, it will be more helpful if we consider the issue of capital from the perspective of commodities.

How much money will the company need?

Where to get the money?

What will be the cost of obtaining funds from various sources?

Many companies start with their own capital, plus money borrowed from friends and family.

A famous example is Steve.

Jobs (Steve Jobs) sold his car so that he could raise enough money to set up a Apple Com puter Inc.

Such funds are very cheap, almost no need, or no interest at all, and borrowing money through personal relationships means generally good conditions.

However, the supply of such funds is often limited and can not be supplemental.

Another source of funding for small businesses is bank loans.

However, it can not be assumed that banks will be willing to lend.

Even at low interest rates, bank loans are expensive.

For example, small business loans are much more expensive than mortgages.

Those attractive companies can sometimes get funding from venture capitalists.

The size of these investors is also different: some are angel, who invest thousands of pounds to help a start-up or save a private investor who is struggling to support them; others are large venture capital institutions, which often invest in specific areas like bioengineering.

A good venture capitalist can become a strong partner. Besides investment, he can also provide professional advice in management.

But it is important to be careful to establish a strong alliance between venture capitalists and invested companies.

Remember, what venture capitalists want is a part of your profits and share as a reward for their investment. They make money in this way.

Once the company grows and expands, it can prove itself. Maybe it can consider letting it enter the stock market.

Issuing shares can quickly raise large sums of money, and then can be invested in the company's operations.

However, entrepreneurs sometimes forget that when they offer shares through the stock market, they are actually selling the company.

They no longer own it, and shareholders are the owners of the company.

Some high-profile entrepreneurs have been kicked out of their boards by forgetting this simple fact.

Every means of financing is dangerous, but without money, it can not grow.

It is tempting to have no money to pay, but only to generate all the funds from the cash flow. But in every ten thousand businesses, there is probably not even one house.

If we remember that capital is a commodity, we can understand that debt financing and equity financing are not so troublesome and complicated, but only a simple way to find more such goods.

Over the past three hundred years, economists have been encouraging companies to borrow more money to build liquidity so that companies can expand and expand.

So what seems paradoxical is that borrowing generates wealth.