What is startup capital?

What is startup capital?

The capital that every business needs to start is startup capital. Without start-up capital, we can’t meet some requirements of business such as office expenses, products, stock, manufacturing, production, marketing, business license approval, and many other expenses which are required to meet the startup capital. It is not necessary that everyone has startup capital, that’s why owners arrange for startup capital from banks or other financial institutions, lenders, investors, financial helpers, family or friends, and take a personal loan. These are some ways to borrow startup capital and we borrow it in the form of debt or equity capital. We borrow it by according to the basic requirements of our business such as:

  • how much capital is needed to start a business
  • how much capital is needed to invest in business materials such as stock, machines or equipment.
  • how much capital is needed to invest in production, marketing consultants.

Every business has its own foundation which needs capital to fill that foundation so they can fill that foundation from themselves and can also be borrowed from anywhere but from where they borrow money, they have to pay full interest.

Debt capital

If we take the startup capital in the form of debt, it is necessary to pay because they don’t provide anything for free, but provide interest. Therefore, the business owner should take a loan according to the requirements of their business so that they can pay for it further without any obstacles. But every owner needs to have a proper business planning before borrowing the startup capital from anywhere because if owners don’t have any qualified budget according to the business requirements so that they cannot fulfill the requirements of financial institutions or lenders, from where owners borrow money as a startup capital. If the owners borrow startup capital from the bank, then it also charges a variety of fees along with interest so that’s why owners must prepare accurate business plans for future plans. The most important thing is that banks make an agreement which is filled with many legal conditions which the business owner has to fulfill.

Equity capital

This capital borrows from the other business owners such as business ventures or investors in which other ventures provide money as a share and also get a share of profit from a business. It is a kind of contribution of ventures and according to that contribution, they take their share.

It has also an advantage for the owner who borrows money from the other ventures as a startup capital such as:

  • No need to pay any interest or repayment of capital
  • No need to fill any extra legal formalities

And it has also some disadvantages such as:

  • Divide shares from business profit
  • Divide control over business
  • Equal decision making

Family or friends

Business owners can also borrow money from family or friends to invest in business or start a business. Some family members provide a capital without any interest and some provide with interest too. But there are some advantages by taking money from here such as:

  • No involvement in decision making
  • No involvement in share of profits
  • No need of any agreement

So in business, the owner actually requires startup capital for such advanced requirements such as marketing consultant, business contingency plan, business projects, design website if want to achieve success fast in business, everybody needs a qualified financial advisor and so on. 

It’s not that, every business owner has similar business requirements and expenses so everyone has their own budget of business and goals. In all over words,  startup capital is not borrowed like this, everyone has to get borrowed according to their business needs so if someone wants capital for long term then they take capital in the form of debt and someone wants capital for short term then they take capital in the form of equity. Money provided process is called lending.