Financial capital is any economic resource measured in terms of money used by entrepreneurs and businesses to buy what they need to make their products or to provide their services to the sector of the economy upon which their operation is based, i.e. retail, corporate, investment banking, etc.
Otherwise known as “net worth” or “book value,” this figure represents a company’s assets minus its liabilities. Some businesses are funded entirely with equity capital in the form of cash invested by the shareholders or owners into a company that has no offsetting liabilities. This is the favored form of capital for most businesses because they don’t have to pay it back, but it can be extraordinarily expensive and it can require massive amounts of work to grow an enterprise that’s been funded this way.
This type of capital is money given as a loan to the business with the understanding that it must be paid back by a predetermined date. The owner of the capital—typically a bank, bondholders, or a wealthy individual—agrees to accept interest payments in exchange for you using their money.Think of interest expense as the cost of “renting” the capital to expand your business. It’s often known as the cost of capital.
This is the gold standard, and it’s something you would do well to find as a business owner. There are a few sources of capital that have almost no economic cost and can take the limits off growth. They include the negative cash conversion cycle or vendor financing, and insurance floats.