Section3: The source of finance
Most of the time, companies borrow money from the bank to finance their activities or investment. Banks are not the only source of finance for companies; there are also owner’ capital, shareholders equities, microfinance institutions, business angels, and venture capital.
• Owner’ capital
To finance his activity or investments, the owner sometimes uses his own money. It can be his savings, legacy or money obtained from relatives.
• Shareholders equities
They represent the amount invested by the owners plus the profits (or minus the losses) of the enterprise. At the beginning of a business, owners put some funding into the business to finance operations. This creates a liability on the business in the shape of capital as the business is a separate entity from its owners. After liabilities have been deducted, the rest positive, is used to finance the firm's assets
• Business angel
It is usually a successful entrepreneur or professional, who is willing to invest in high-risk, high-growth firms at a very early stage, and adds value by putting his skills, experiences and relation network at the service of the company and by giving business advice
• Venture capital
Venture capital is a financial capital provided to early-stage, high-potential, and growth startup companies. Venture capital is attractive for new companies with limited operating history that are too small to raise capital in the public markets and have not reached the point where they are able to secure a bank loan or complete a debt offering. In exchange for the high risk that venture capitalists assume by investing in smaller and less mature companies, venture capitalists usually get significant control over company decisions, in addition to a significant portion of the company's ownership (and consequently value).
• Microfinance institution
The microfinance institution tries to give access to financial services to people who are excluded from the banking system